The U.S. Chamber of Commerce called for numerous reforms to the Securities and Exchange Commission’s investigative process on Wednesday, in a new report some of whose provisions the markets watchdog said would weaken its ability to protect investors.
The Chamber’s key recommendations lay out ways to bolster due process for defendants in SEC enforcement actions by strengthening policies surrounding in-house trials, admissions of wrongdoing and “Wells notices,” sent by the agency as a final warning to companies and individuals that it plans to bring charges against them.
“SEC enforcement should have a fair process for all to ensure that the rights of the accused are preserved while allowing the process to achieve its goals of finding truth, punishing wrongdoers and preventing future harm,” the Chamber wrote.
The Chamber’s report in particular takes aim at SEC in-house trials.
The 2010 Dodd-Frank law expanded the SEC’s powers to bring more cases against defendants through administrative proceedings instead of federal courts.
In administrative trials, an SEC judge presides over the hearing. Such trials are usually expedited, there is no jury, and discovery is limited.
Critics say in-house trials violate their constitutional rights.
In its report, the Chamber calls for the SEC to adopt a uniform policy on when to use such trials and to create a process for defendants to challenge the choice of venue and amend its rules to permit more pre-trial discovery.
The SEC has repeatedly defended its right to bring a case in the venue of its choice, and has touted in-house trials’ speedy nature and the expertise of the judges who hear the cases.
“The report contains certain recommendations that would significantly weaken the Commission’s ability to protect investors through strong and effective enforcement of the federal securities laws,“ SEC Enforcement Director Andrew Ceresney said in a statement, adding that the SEC will continue to "aggressively hold wrongdoers accountable.”
SEC Chair Mary Jo White, a former federal prosecutor, has made tough enforcement a signature piece of her tenure.
In 2013, she launched a policy allowing the agency to extract admissions of wrongdoing in certain egregious cases – a departure from the past practice of letting defendants settle without admitting or denying the charges.
The Chamber’s report calls on the SEC to more routinely review this policy.
It also seeks other reforms, such as giving companies who have submitted last-ditch pleas in response to Wells notices a warning of at least three business days before the SEC files an enforcement action.
(Reporting by Sarah N. Lynch; Editing by Christian Plumb)
