Amid growing scrutiny of the process, in both the business and judicial world, the Securities and Exchange Commission has proposed changes to how it conducts its administrative proceedings.

The proposals would amend the Commission’s Rules of Practice to adjust the timing of administrative proceedings; permit parties to take depositions of witnesses as part of discovery; and require parties in administrative proceedings to submit filings and serve each other electronically.

The SEC’s Rules of Practice establish the timing for certain stages of an administrative proceeding, including a pre-hearing period, hearing, a period during which parties review hearing transcripts and submit briefs, and a deadline by which the hearing officer must file an initial decision. Typically, administrative proceedings are designated as 120-day cases, proceedings seeking sanctions as a result of an injunction or conviction as 210-day cases, and proceedings alleging violations of the securities laws are designated as 300-day cases. Because deadlines are calculated from the date of service of the order instituting proceedings, if there are delays early on in the proceeding, the hearing occurs later and the hearing officer then has less time to prepare an initial decision.

The proposal includes modifications to address the timing of proceedings. The deadline for filing the initial decision would run from the time that the post-hearing briefing or briefing of dispositive motions or defaults has been completed, rather than the date of service of the order instituting proceedings. Deadlines for initial decisions that would be designated in orders instituting proceedings would be 30, 75, and 120 days from the completion of post-hearing or dispositive briefing.

The changes also provide a range of time during which the hearing must begin. For example, in 300-day cases, the current rule states that a hearing should occur within approximately four months. The amended rule would provide that the hearing must be scheduled to begin approximately four months after service of the order instituting proceedings, but not later than eight months, doubling the maximum length of the current rule’s pre-hearing period to afford parties more time to conduct deposition discovery and review case documents.

The proposed amendments would also extend, upon request, the initial decision deadline by up to 30 days, a change “intended to promote effective case management by hearing officers” who are often faced with several initial decision deadlines in the same week. The amended rule would retain the provision allowing the Chief Law Judge to request an extension of any length from the Commission, without regard to whether a hearing officer has already sought to extend the deadline.

The proposed amendments also would simplify the requirements for seeking a review of an initial decision by the full Commission review and provide enhanced transparency into the timing of its decisions in such appeals.

Changes are also intended to “automate and modernize aspects of the filing process in administrative proceedings to facilitate the flow of information to the public.” The SEC is currently developing an Internet-based electronic system that would allow those involved in administrative proceedings to file and serve documents electronically. “The Commission believes that electronic submissions will enhance the transparency of administrative proceedings by providing a quicker way for the Commission to make records available to the public…and increase its ability to efficiently process filings, and may decrease costs for parties who may file and serve submissions electronically, rather than in paper format,” the proposal says. Filing by facsimile and in paper format would no longer be permitted absent the filing of a certification that the person reasonably cannot comply with the electronic filing requirement.

For the first 90 days after the proposed amendments become final, the Commission intends to administer a phase-in period that would require all filings to be made both electronically and in paper format. Filers would be required to exclude or redact sensitive personal information from electronic filings, including Social Security numbers, taxpayer identification numbers, credit card or debit card numbers, passport and driver's license numbers, home address (other than city and state), telephone number, date of birth (other than year), names and initials of minor children, and any sensitive health information.

A 60-day public comment period will be initiated once the proposals are published in the Federal Register.

 

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