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SEC Proposal Amends Administrative Rules

The SEC recently issued two proposals to amend the rules that govern its administrative proceedings. Chair Mary Jo White said in a press release that “[t]he proposed amendments seek to modernize our rules of practice for administrative proceedings, including provisions for additional time and prescribed discovery for the parties.” The SEC has faced continuing criticism over its use of administrative proceedings, including from the Chamber of Commerce which issued a lengthy report suggesting changes to the enforcement process and use of administrative courts to resolve issues of due process.  The proposed amendments are related to the rules of practice, not the structure of the administrative courts.

The first proposal seeks to “introduce additional flexibility into administrative proceedings, while still providing for the timely and efficient disposition of proceedings.” The amendments would give hearing officers a separate timeline within which to render a decision and the ability to extend that deadline by 30 days, whereas current rules can limit the hearing officer’s time to render a decision where there are early delays in a proceeding. The proposal would extend the maximum length of the prehearing period in certain proceedings and alter the Commission’s guidelines related to the timeline for issuing a decision on an appeal.

In certain cases, the proposal would allow both respondents and the SEC to take depositions and enable the issuance of subpoenas for appearance and the production of documents. This change would “provide parties with an opportunity to develop arguments and defenses through deposition discovery, which may narrow the facts and issues to be explored during the hearing.” The proposal also would align Commission rules of practice with the Federal Rules of Civil Procedure used in district courts in certain areas of subpoena practice, expert witness disclosures, and service of process.

The amendments would require the SEC to make certain documents related to its investigation available to respondents prior to the institution of proceedings. Other changes would allow for the exclusion of “unreliable” evidence, and “clarify that hearsay may be admitted if it is relevant, material, and bears satisfactory indicia of reliability so that its use is fair.” Additionally, the amendments would limit the length of petitions for Commission review to alleviate issues caused by short timelines and incentives to file lengthy petitions for review.

The Commission also released a second proposal related to administrative proceedings that seeks to “automate and modernize aspects of the filing process in administrative proceedings to facilitate the flow of information to the public.” The proposal noted that the SEC is currently developing a system to allow electronic filing and the “prompt distribution of public information regarding administrative proceedings.” To facilitate this process, the proposal would require electronic submissions in administrative proceedings, which the SEC believes will increase efficiency and decrease costs for filers. Paper filings would only be permitted with “a certification that the person reasonably cannot comply with the electronic filing requirement.”