WHEREAS, the U.S. Securities and Exchange Commission (SEC) in recent years has significantly increased its reliance on administrative proceedings to adjudicate alleged violations of the securities laws, rather than proceedings in federal district court;
WHEREAS, SEC administrative proceedings lack the due process protections afforded by federal district court proceedings;
WHEREAS, the lack of sufficient procedural protections provided by administrative proceedings favors the SEC to the detriment of respondents, including but not limited to the inadequate notice to respondents (often after years-long investigations by the government), unrealistic deadlines for filing answers and motions for summary disposition, severe limitations on discovery—from the inadequate window for discovery, to the information that can be requested from the government, to the ability to depose witnesses (and in what matter)—and lenient rules on the admissibility of hearsay and other unreliable evidence;
WHEREAS, the use of administrative proceedings without the input or consent of respondents raises further due process-related concerns, particularly when the independence of the forum is in question, with the SEC serving as the prosecutor, judge and primary appellate tribunal on its own cases;
WHEREAS, SEC administrative proceedings often parallel criminal investigations and prosecutions of the same respondents, which can negatively affect how these criminal matters are handled, such that the lack of impartiality of the SEC administrative proceedings is a substantial detriment to the fair operation of the criminal justice process;
And WHEREAS, the SEC, in pursuing enforcement matters, often works closely with the U.S. Department of Justice (DOJ) and Federal Bureau of Investigation (FBI), and this collaboration can and does trigger individual criminal prosecutions and sharing of information;
NOW THEREFORE BE IT RESOLVED that, guided by its judgment as to the importance of these issues, the Board of Directors of the National Association for Criminal Defense Lawyers adopts recommendations to address the aforementioned flaws through reforms to the applicable securities laws and the rules governing the SEC administrative proceeding process,1 including:
Imposing clearly defined limitations on when the SEC may use administrative proceedings to adjudicate matters over which the federal courts have jurisdiction;
Creating a procedure whereby any party named in an administrative proceeding may remove the proceeding to a federal district court with proper jurisdiction;
Adopting clear and consistent policies that would reform the SEC’s “Wells” process, by which defendants / respondents are supposed to be informed of the charges being recommended against them and accorded with the opportunity to respond to the allegations before the SEC initiates an enforcement action; such policies should include: providing defendants / respondents with a full presentation of the nature of a proposed case and the supporting evidence before commencing a Wells submission or white paper process; permitting access to investigative files with adequate time to permit a meaningful response to a Wells Notice or request for a white paper; and providing advance notice of intent to file an enforcement action;
Adopting policies that would increase the fairness and minimize the burdens of the discovery process in SEC investigations, including: providing more reasonable timelines for document production; increasing the discovery rights of defendants / respondents; and imposing stricter rules on the admissibility of evidence;
Restricting the ability of the SEC to share information gathered during the course of an investigation with the DOJ and FBI without the consent of the defendants / respondents; and
Making other recommendations for policy and legislative change as are necessary to address these issues.
BE IT FURTHER RESOLVED that criminal defense attorneys should advocate for reform of the SEC’s administrative proceeding process.
THEREFORE BE IT FURTHER RESOLVED that the National Association of Criminal Defense Lawyers urges Congress and the SEC, when drafting rules and legislation, to impose principled limits on the administrative remedies available to the SEC, taking into account the important due process considerations at stake.
1 In developing these recommendations, NACDL acknowledges the provisions in the proposed Due Process Restoration Act of 2015 currently under consideration in the U.S. House of Representatives, and the report released by the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness in July 2015 entitled Examining U.S. Securities and Exchange Commission Enforcement: Recommendations on Current Processes and Practices.