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By Jeffrey T. Petersen, Esq. of Shustak Reynolds & Partners, P.C. posted on Friday, September 25, 2015.

James J. Reynolds

James J. Reynolds


We have been regularly updating the wave of lawsuits that have been filed against the SEC this year, charging that the Commission’s use of in-house courts to try civil actions against individuals is unconstitutional.

In the wake of these lawsuits, the SEC indicated that it may revise how its internal court system functions for the first time in 20 years. The SEC commissioners voted yesterday to seek public comment over the next 60 days on certain reforms it is proposing, which include: (1) letting the people being sued in the SEC’s internal courts depose witnesses; and (2) providing the defendants more time to prepare for the trial hearings against them.

These proposed changes go to the heart of the practical criticisms against the SEC’s internal courts, namely that a defendant’s discovery rights are seriously curtailed in such a setting, while at the same time the pace of the proceedings is significantly expedited. This often leaves the defendant headed to trial in a few months with very little discovery in hand for his or her defense. It’s likely that the recent crush of litigation – which the SEC probably has gotten the better of, but which has still resulted in defeats at the district court level and a federal appellate stay of one in-house court proceeding in New York – led to this apparent compromise proposal from the SEC.

Note, however, that after the public comment period, the commissioners would have to hold a second vote for the proposed changes to become binding. It would be surprising, though, for the commissioners to change course after taking this rare step of proposing change. We’ll circle back to this issue after that second vote occurs.

Jeffrey Petersen, Esq. Shustak, Reynolds & Partners, P.C.  Shustak, Reynolds & Partners, with offices in California and New York, represent clients across a broad spectrum of SEC investigations and enforcement actions. Jeff can be reached in San Diego at 619.696.9500. Dennis A. Stubblefield, Esq., a partner with the firm and former attorney with the SEC Enforcement Division, has extensive experience in SEC investigations and enforcement actions and can be reached in Irvine at 949.451.6800.


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