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Guerra & Partners


In Apparent Response To Recent Challenges SEC Proposes Amendments To Rules Governing Administrative Proceedings

On September 24, 2015, the Securities and Exchange Commission announced that it had voted to propose amendments to the rules governing administrative proceedings.  The announcement comes in the wake of rising opposition by the targets of such proceedings and increased criticism from industry participants who argue that the current system is fundamentally unfair.  As evidence, critics have cited the SEC’s increased use of such proceedings since the Dodd-Frank Act and its near 100% “win” rate in such cases.  SEC Chair Mary Jo White said that the proposed amendments “seek to modernize the rules of practice . . . .”  While the proposal would amend a number of the SEC’s rules of practice, there are two significant changes that would theoretically level the playing field for respondents to some degree.

One proposed change would extend the prehearing period for more complex cases.  Current rules provide for “rocket dockets” requiring the hearing officer to enter an initial decision within 300 days of the order instituting the proceeding.  This generally leaves respondents with only 120 days to review the SEC’s often voluminous investigatory file, answer the SEC’s allegations, complete limited discovery, retain and consult with expert witnesses, prepare prehearing briefs, and prepare for the hearing.  The proposed change would allow respondents in complex cases between 120 and 240 days to prepare for the final hearing, with an initial decision to be entered within 120 days of the completion of post-hearing briefing.  While this change would meaningfully improve respondents’ ability to prepare their defense, it will still leave them at a significant disadvantage to the SEC as it often has a year or more to prepare its case before the proceeding is even initiated.

The second significant change would expand respondents’ ability to conduct discovery by allowing them to take depositions in advance of the final hearing.  Under current rules a respondent may only take a deposition if a witness is unable to attend or testify at the hearing.  The proposed rule would not restrict depositions to such circumstances.  Rather, in single respondent proceedings the proposed rule would allow the respondent and the SEC to each take three depositions.  In multi-respondent proceedings the respondents would collectively be permitted to take five depositions, as would the SEC.  The SEC contends that this change would “facilitate the development of the case during the prehearing stage” and “provide . . . an opportunity to develop arguments and defenses” which may narrow the facts and issues to be explored at hearing.  Notwithstanding the benefits, this change also does little to change the balance of power.  Respondents will still be handicapped in their ability to elicit testimony from witnesses prior to the hearing as compared to the SEC which can take unlimited depositions during the investigatory phase prior to the institution of a proceeding.  Furthermore, any benefits to respondents may be counteracted by the burden of preparing for as many as ten depositions while also trying to complete all of the other tasks necessary to prepare for a hearing in the four to eight months that would be allowed under the proposed rule.

The SEC’s proposed changes reflect at least some acknowledgment that the administrative proceeding process is skewed in its favor, but whether those changes are sufficient to quell further opposition to the administrative process remains to be seen.

The SEC’s press release announcing the proposed rule changes can be found at  Details of the proposal are set forth in SEC Release No. 34-75976, found at  The SEC is accepting public comments on the proposed rule changes through December 4, 2015.

For more information, please contact Rob Jamieson  at or 813.347.5110.