The SEC has announced a series of proposed changes to the Rules of Practice governing its internal enforcement actions. The changes update the decade-old Rules and respond in small part to a groundswell of criticism about the Commission's administrative forum. A. Lengthening the "rocket docket."
Rule 360 presently requires actions to go from the Order Instituting Proceedings ("OIP" - the charging document) through to decision within 120, 210 or 360 days. That's a very fast schedule for Respondents to digest and defend a case the Enforcement Division might have taken up to 5 years to prepare. The SEC proposes three changes: First, the new deadlines would run from the conclusion of post-hearing briefing (two months after conclusion of the hearing) rather than the OIP, but would impose shorter deadlines of 30, 75, or 120 days. Second, the Rule would provide that a hearing must start 4-8 months after service of the OIP. Third, the Commission would delegate to hearing officers the ability to certify 30-day extensions that are self-executing but subject to Commission's disapproval - flipping requirement of Commission's prior approval. It would retain the Chief ALJ's ability to request longer extensions from the Commission. B. Permitting Respondents to take limited depositions.
Rule 233 presently permits depositions only of those witnesses not available to testify at a hearing. The new proposal would allow limited depositions -- 3 per side in individual cases, up to 5 per side in multiple party cases. The depositions would be limited to fact witnesses, designated experts and document custodians, but exclude "meta" witnesses, whose knowledge rests only on Enforcement's investigation or litigation. Depositions of unavailable witnesses would not count against the limit. The proposal includes many conforming changes including provisions for: (a) deposition subpoenas and quashing them; (b) control and 6-hour time limits; (c) depositions on written questions; and other procedures consistent with Fed. R. Civ. P. 45 and 30. C. Other Procedural Changes.
Other aspects of the proposal would bring expert witness disclosures parallel to current Fed. R. Civ. P. 26, provide for additional methods to serve Respondents overseas and ensure that any stay of proceedings for Commission consideration of settlement offers apply to all deadlines. The proposal also adds "unreliable" as a basis for an ALJ's exclusion of evidence, but expressly allows the admission of hearsay evidence if it is material and has satisfactory indicia of reliability. D. Streamlined Appeals
. Under current practice a petition for Commission review of an ALJ decision must specify each error on pain of waiver. The 21-day deadline and fear of waiver often leads to lengthy petitions giving the party seeking review an additional "bite at the apple" during briefing later. The Commission proposes to adopt a "notice of appeal" model, requiring streamlined, 3-page summary petitions for review, shifting detailed arguments to the parties' briefing. E. E-filing.
Finally, the Commission proposes to replace paper and fax filing with mandatory e-filing through a web-based portal, similar to PACER, with electronic service and redaction of PII in the manner now required by federal courts. The proposed amendments reflect more updating than any radical overhaul and do not address many of the issues raised by critics. Last July, for example, the US Chamber of Commerce published a white paper containing 28 recommended changes to the SEC's Enforcement process. I summarized it here
. The Rule revisions are in Rel. 34-75976 (Sept. 24, 2015), here
. The E-filing proposal is in Rel. 34-75977 (Sept. 24, 2015), here
. The proposals will be open for public comment for 60 days after they are published in the Federal Register. The Commission's Rules of Practice are at 17 C.F.R. § 201. Thomas K. Potter, III
(email@example.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 29 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile.
© 2015 by Thomas K. Potter, III (all rights reserved).