MISSISSIPPI SECRETARY OF STATE IMPROPERLY CALCULATES SECURITIES LAW PENALTIES

In a recent case we handled before the Mississippi Supreme Court, the Court significantly limited the power of the Secretary of State to impose administrative penalties for securities law violations. The amount a person or company may be fined for securities violations is covered by state statute. Under the applicable statute (currently Miss. Code. Ann. § 79-11-509) , the Secretary of State may impose “an administrative penalty up to a maximum of Twenty-five Thousand Dollars ($25,000.00) for each offense and each violation shall be considered as a separate offense in a single proceeding or a series of related proceedings.” Historically, the Mississippi Secretary of State has multiplied the number of violations by the number of investors in order to increase the total fine. Calculating fines this way has given the Secretary of State enormous leverage when it comes to forcing alleged violators to settle rather than contest the allegations. For example, in the case we appealed the administrative hearing officer recommended a fine of $1,585,000. It goes without saying that for an individual corporate officer or small company, the potential for such a large and devastating fine makes it harder not to accept a lesser sanction even when there was no wrongdoing. On behalf of our client, on appeal we argued that the Secretary of State’s method of calculating the penalties was illegal, and that the penalty itself was imposed in an arbitrary and capricious manner. In the decision recently handed down by the Mississippi Supreme Court, the Court stated that “we do not find a basis in the law for the Secretary of State’s method of calculating the...