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House Subcommitte Introduces Bill Designed to Reign in Use of SEC In-House Courts

By Jeffrey T Petersen, Esq.  of Shustak Reynolds & Partners, P.C. posted on Wednesday, October 28, 2015.

The chairman of the House Financial Services subcommittee on capital markets, Rep. Scott Garrett, (R., N.J.), introduced a bill last Thursday that would give defendants in SEC administrative proceedings the right to choose trial in a federal court, rather than proceeding before an SEC administrative law judge, and pursuant to the administrative rules which restrict discovery and expedite the hearing process greatly.

The SEC’s increased use of its in-house courts has created a wave of judicial challenges to the constitutionality of that forum, and now another branch of government is seeking to weigh in on the matter.

Rep. Garrett echoed the concerns that have been raised about the fairness of the SEC’s administrative forum, citing the far higher success rate the SEC has in cases before its administrative law judges when compared to its success in the federal courts. A Wall Street Journal article in May of this year showed the SEC was victorious in 90% of its cases in the administrative forum, as opposed to succeeding in 69% of its cases in federal court.

The bill’s introduction comes just weeks after the SEC introduced proposals to address fairness concerns over its use of in-house courts, including allowing a greater scope of discovery and additional time to prepare for hearing. We will monitor this bill’s progress and keep you posted.

Jeffrey T. Petersen, Esq. is an attorney with Shustak & Partners, P.C.  Shustak & Partners, with offices in California and New York, focuses on financial services law and represents broker dealers, investment advisers, registered representatives and high net worth investors. Jeff can be reached in San Diego at 619.696.9500.

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