The Cadwalader securities enforcement team reviewed recent SEC amendments to the Rules of Practice for administrative proceedings. In a memorandum titled "The SEC Retains Its House Advantage during Administrative Proceedings," Cadwalader attorneys conclude that "despite a few modest and incremental reforms relating to prehearing deadlines and discovery opportunities, the amendments do little to address the most fundamental inequities of the SEC's in-house courts and continue to leave respondents before an ALJ at a significant disadvantage."
Cadwalader attorneys noted that during the years following the enactment of Dodd-Frank, the SEC brought an increasing number of enforcement actions before its in-house administrative law judges ("ALJs") and a diminishing number before Federal District Court. Respondents in administrative proceedings lack certain due-process protections that include jury trials, the application of the Federal Rules of Civil Procedure and Evidence, and the independent appeals process.
The new amendments offer respondents: (i) a limited extension of the prehearing period to review the record and prepare for the hearing; (2) an expanded ability to take depositions as discovery; (iii) a greater ability to seek dismissal; and (iv) limitations on the use of hearsay evidence. Cadwalader attorneys concluded that the amendments continue to leave respondents before ALJs at a significant disadvantage:
The amended Rules of Practice are a step in the right direction for administrative proceedings, but they are by no means equivalent to the degree of constitutional and procedural protections afforded civil defendants who find themselves in federal district court. Until further amendments are enacted, or a constitutional challenge succeeds, the SEC will continue to hold a strong advantage over respondents who find themselves standing before an ALJ.
The amended Rules of Practice will become effective on September 27, 2016, and will apply to all administrative proceedings initiated on or after that date.
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