SEC Regulatory Overreach

I have repeatedly worried about regulatory overreach (here, here and here); while most of the examples in those posts came from India, I was always clear that the phenomenon is global in nature. In a blog post (at CLS Blue Sky Blog) Johnson and Barry carry out an analysis of the US Securities and Exchange Commission (SEC) which documents the overreach of that regulator.

The Dodd Frank Act of 2010 greatly expanded the ability of the SEC to initiate proceedings in its own administrative courts before an Administrative Law Judge appointed by the commission instead of filing the case in a federal court. Since around 2013, the SEC has relied more on these proceedings which give substantial advantages to the SEC – less comprehensive discovery rules, no juries, and relaxed evidentiary requirements. A study by the Wall Street Journal showed that the SEC wins cases before its in-house judges much more frequently than before independent courts.

Johnson and Barry show that even this “home field” advantage is not enough – the SEC seems to be overreaching or overcharging its cases to such an extent that it is losing a number of high-profile administrative cases. They conclude:

When it began to shift away from filing cases in district court, it likely believed it would see more success in administrative proceedings, but that has not consistently been the case. Although the SEC is still winning many of its administrative cases, its recent losses reflect a failure to evaluate the strength of its proof, particularly in cases where scienter evidence is thin, or overall evidence of alternative theories consistent with innocence is equally strong.

Posted at 6:24 pm IST on Sat, 9 Dec 2017         permanent link

Categories: law, regulation

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