Karmel’s Dissent: The SEC’s Use and Occasional Misuse of Section 21(A) Reports of Investigation

Brooklyn Journal of Corporate, Financial & Commercial Law (forthcoming)

UCLA School of Law, Law-Econ Research Paper No. 22-01

25 Pages Posted: 14 Jan 2022

See all articles by James J. Park

James J. Park

University of California, Los Angeles (UCLA) - School of Law

Date Written: January 13, 2022

Abstract

Section 21(a) of the Securities Exchange Act gives the SEC the option of publishing a report of its findings after conducting an investigation. Typically, the SEC issues such reports about once a year to highlight major compliance and enforcement issues. This Article examines the SEC’s use of Section 21(a) investigative reports with special attention to its 1979 report in Spartek, where Commissioner Roberta Karmel filed a famous dissent. In that opinion, she argued that the report effectively sanctioned conduct over which the SEC did not have jurisdiction and that Spartek did not have sufficient notice of its regulatory obligations. While such concerns have not been at issue in most Section 21(a) reports of investigation, they were recently raised by the SEC’s report in DAO, which analyzed whether a digital token was a security under the Howey test. While the SEC’s conclusion was reasonable, it was a close call, and the report did little to clarify the scope of the SEC’s jurisdiction over tokens. The SEC should be cautious in using reports of investigation to define its own jurisdiction and should actively seek adjudication to confirm the scope of its authority.

Keywords: Securities Regulation, Securities Enforcement, Securities Law, SEC, Administrative Law

Suggested Citation

Park, James J., Karmel’s Dissent: The SEC’s Use and Occasional Misuse of Section 21(A) Reports of Investigation (January 13, 2022). Brooklyn Journal of Corporate, Financial & Commercial Law (forthcoming), UCLA School of Law, Law-Econ Research Paper No. 22-01, Available at SSRN: https://ssrn.com/abstract=4008573

James J. Park (Contact Author)

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States

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