THE SECURITIES AND EXCHANGE COMMISSION’S HOME FIELD ADVANTAGE

Securities and Exchange Commission The expansion of the rule making powers of our federal bureaucratic agencies has led to the increasing use of in-house judges to decide regulatory enforcement actions. Currently more than two dozen federal agencies regularly use in-house administrative law judges. One of those agencies is the Securities and Exchange Commission. The SEC has been in the news lately as it attempts to defend its own increased use of in-house judges as a result of the Dodd-Frank financial reform law. For many years critics of the SEC’s administrative process have claimed that the process is suspect because the SEC gets to hand pick the judge who will decide the case. Not surprisingly, getting to pick the judge gives you a significant home field advantage. According to the Wall Street Journal, between October 2010 and March 2015 the SEC won 90% of the cases which were decided by its in-house judges. This 90% success rate is much better than 69% success rate the SEC achieved over the same period when the enforcement action was brought in a federal court. The SEC’s home field advantage continues on appeal where the initial review is before the SEC’s own Commissioners rather than a federal appeals court. According to the Wall Street Journal, on the Commissioners found in favor of the SEC 95% of the time. The SEC’s justification for using internal administrative law judges is that the process is faster and more efficient than cases in federal court. Obviously, one of the reasons that the process is faster is because the due process rights of the accused are limited. Although the...

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...