Late Friday afternoon, the SEC’s Division of Enforcement announced that it had issued staff guidance on factors the agency will consider in recommending that a particular litigated enforcement matter be brought in an administrative proceeding or in federal district court.
As previously discussed here, SEC Commissioner Michael Piwowar stated in February 2015 at the annual SEC Speaks conference in Washington, D.C. that as a matter of "fairness," the SEC should draft such guidelines. He said in that speech that
To avoid the perception that the Commission is taking its tougher cases to its in-house judges, and to ensure that all are treated fairly and equally, the Commission should set out and implement guidelines for determining which cases are brought in administrative proceedings and which in federal courts.
The newly-issued guidance reiterates that as a general matter, there is no "rigid formula" to determine the SEC's choice of forum and that "the Division recommends the forum that will best utilize the Commission’s limited resources to carry out its mission." That said, the Division of Enforcement "may in its discretion consider any or all" of the following factors:
The availability of the desired claims, legal theories, and forms of relief in each forum. The SEC noted that certain charges (e.g., failure to supervise) can only be pursued as an AP. Others such as liability as a controlling person or as a relief defendant, or cases seeking emergency relief, can only be pursued in district court.
Whether any charged party is a registered entity or an individual associated with a registered entity. Registered entities and associated persons are subject to SEC oversight, including APs. The SEC added that its Administrative Law Judges and the Commission have extensive, specialized knowledge concerning the issues involving registered entities.
The cost-, resource-, and time-effectiveness of litigation in each forum. This SEC stated that hearings are held more quickly in APs than in contested federal court actions, "which may allow the Division to use the Commission’s limited resources more effectively." District court, however, may allow the SEC to seek and obtain relief more efficiently in a single proceeding. In addition, the pros and cons of the pre-trial discovery available in federal court should be weighed.
Fair, consistent, and effective resolution of securities law issues and matters. The guidance emphasizes the ALJs' extensive knowledge and experience concerning the federal securities laws and securities industry practices, and states that APs may therefore be preferable "if a contested matter is likely to raise unsettled and complex legal issues under the federal securities laws, or interpretation of the Commission’s rules."
The full text of the "Division of Enforcement Approach to Forum Selection in Contested Actions" is available here.
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