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More problems surfacing for the SEC’s in-house legal system, where the SEC gets to be prosecutor, judge, jury and appellate court and industry participants get screwed.According to the Wall Street Journal, “[s]ince Mary Jo White became SEC chairman in April 2013, the median time for the agency to decide appeals of its in-house judges’ decisions has increased to 19 months.”
Source: The Securities Law Blog: SEC Appeals Process on the Slow Track – WSJ
The SEC has settled insider trading cases with two traders in China and Hong Kong, who agreed to pay more than $920,000 to settle the charges against them.Cousins and business associates Zhichen Zhou and Yannan Liu, whose assets were frozen by an emergency court order when the SEC’s complaint was filed against them last month, must disgorge their entire ill-gotten profits of $306,929.59 plus pay penalties of $306,929.59 each.
A federal judge ruled that the Securities and Exchange Commission’s use of an in-house judge to preside over an insider-trading case was “likely unconstitutional,” a potential blow to the agency’s controversial use of its internal tribunal.The decision provides an excellent overview of the SEC’s administrative hearing process, with all of its warts and deficiencies.
Source: The Securities Law Blog
More information coming out from the Wall Street Journal’s article on the failure of defendants to get a fair trial before the SEC’s own administrative law judges.According to the article, one former SEC judge said she thought the system was slanted against defendants at times.Lillian McEwen, who was an SEC judge from 1995 to 2007, said she came under fire from Ms. Murray for finding too often in favor of defendants. “She questioned my loyalty to the SEC,” Ms. McEwen said in an interview, adding that she retired as a result of the criticism.
The Securities and Exchange Commission today announced fraud charges against an Atlanta-based investment advisory firm and two executives accused of selling unsuitable investments to pension funds for the city’s police and firefighters, transit workers, and other employees.The SEC’s Enforcement Division alleges that Gray Financial Group, its founder and president Laurence O. Gray, and its co-CEO Robert C. Hubbard IV breached their fiduciary duty by steering these public pension fund clients to invest in an alternative investment fund offered by the firm despite knowing the investments did not comply with state law. Georgia law allows most public pension funds in the state to purchase alternative investment funds, but the investments are subject to certain restrictions that Gray Financial Group’s fund allegedly failed to meet.
It seems that every once in a while securities professionals need to be reminded that conduct that they think is done in the “ordinary course of business” is actually a securities law violation, with significant consequences.
The SEC’s increased use of administrative proceedings as the forum for its enforcement actions has come under fire in recent months, with many of the respondents in those cases filing lawsuits arguing (unsuccessfully) that administrative proceedings are actually unconstitutional.
In a speech on Friday SEC Commissioner Michael Piwowar acknowledged that as a matter of “fairness,” the SEC should draft guidelines to establish “which cases are brought in administrative proceedings and which in federal courts.”
For more information, go to SEC’s Piwowar Seeks Guidelines Governing When SEC Will Bring Cases as APs . (Hat tip to Securities Docket for alerting us to the speech.