SEC’s In-House Jury-less Trials Under Fire

Gavel, symbol of judicial decisions and justice

The Securities and Exchange Commission has been doing a pretty good job recently. In 2014, its enforcement division brought 755 cases and collected an agency record $4.1 billion. However, its powers may soon be weakened. The U.S. Chamber of Commerce recently called for numerous reforms to the SEC’s investigation process in a new report.

The Center for Capital Markets Competitiveness (CCMC), which authored the report, suggests in the document strengthening policies surrounding in-house trials, admissions of wrongdoing, and “Wells notices,” which are final warnings that the SEC sends to companies and individuals it plans to bring charges against, all in order to bolster due process for defendants.

“The SEC’s Enforcement Program is a crucial component of its mission,” said CCMC President and CEO David Hirschmann. “Our research identified a number of ways the SEC can build on the progress it has made to create a level playing field through effective enforcement, and at the same time address ambiguities in the process that can cause unnecessary and counter-productive confusion.”

In particular, the report aims at SEC in-house trials, an alternative to federal courts that are usually expedited, have no jury, and limit the process of discovery. Critics say that these trials violate the constitutional rights of defendants.

“SEC enforcement should have a fair process for all,” says the report.

In the report, the Chamber proposes the SEC adopts a uniform policy on when these trials are to be used, creates a process for defendants to challenge the SEC’s choice of venue, and amend its rules to allow for more pre-trial discovery.

“Both investors and market participants all benefit from tough-as-nails, effective enforcement coupled with a clear and fair process,” said Hirschmann.

The SEC, however, feels that this will weaken its ability to protect investors. The agency has reportedly defended its right to bring a case to the venue of its choice, and touted the speed and experience of judges who hear in-house cases.

According to a statement from SEC Enforcement Director Andrew Ceresney, “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.”

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