Securities Settlements in the Shadows
15 Pages Posted: 14 Sep 2016
Date Written: September 7, 2016
The Dodd-Frank Act authorized the Securities and Exchange Commission (“SEC”) to obtain civil fines against any person in administrative proceedings. Since 2011, the SEC has significantly increased the number of settlements filed in administrative proceedings instead of in federal district court. Before Dodd-Frank, 40% of settlements were filed in administrative proceedings; in fiscal year 2015, over 80% were. The shift to filing settled actions in administrative proceedings instead of in court is significant because it reduces transparency and oversight of settlement practices. Settled actions filed in administrative proceedings are confidential until after the Commission has approved it. By contrast, settled actions filed in court are reviewed by the judge. On occasion, judges have requested additional briefing and even oral argument to ensure that the proposed settlement is in the public interest. Although such interventions are rare, they have had a significant impact on settlement practices. Now that settlements have migrated to administrative proceedings, any oversight that courts exercised is gone, and SEC settlements have departed from SEC’s own announced objectives. The Essay proposes reintroducing some external constraint on securities settlements, whether through courts, administrative processes, or greater transparency.
Keywords: Securities regulation, securities enforcement, SEC, Dodd-Frank Act, administrative proceedings
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