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SEC Faces Continuing Questions on Use of Administrative Courts

On Wednesday, an SEC administrative judge found that Charles Yancey of Penson Financial Services “did not fail reasonably to supervise” an employee who was found to have caused the firm to violate Regulation SHO. The loss on that portion of the case may help the SEC, which has faced criticism over its use of administrative proceedings. Haynes and Boone, the law firm representing Yancey, reported that the agency had won all litigated administrative cases in fiscal year 2014 and all but one over the past three years (22 of 23 cases).

In addition to criticism from attorneys, the Wall Street Journal reported that the SEC also faced questions on its use of administrative courts from the House Financial Services Committee.  The head of the SEC’s Enforcement Division, Andrew Ceresney, faced questions on the use of administrative courts during a recent appearance before the Committee. According to the article, Rep. Scott Garret, Chair of the Committee, argued that “[t]he SEC’s 100% success rate from the year 2014 illustrates a very troubling pattern of the SEC’s attempting to stack the rules of process in a way the outcome of the case is, well, predetermined.” Another member of the committee, Rep. Sean Duffy asked Ceresney “Do you think there is any correlation, when you actually hire the judges and you set the rules, that you win all the cases?” Ceresney responded that the SEC is “not afraid to try cases in federal court. In fact, we’ve won 11 of our last 13 jury trials in federal court….We still bring a majority of our cases in district court.”