The US Securities and Exchange Commission has dramatically increased its use of internal proceedings over the external court system to pursue enforcement cases during the last five years, according to a research report issued Tuesday.
The move has sparked a flurry of lawsuits by companies and people accused of wrongdoing by the SEC. Critics say the inhouse proceedings are biased in favour of the agency because they employ judges chosen by SEC commissioners, writes the FT’s Gina Chon.
From fiscal year 2010 to 2013, the SEC used civil courts to bring more than 65 per cent of its enforcement actions against public company defendants, according to the report by New York University’s Pollack Center for Law & business and Cornerstone Research.
But by 2015, about 76 per cent of its enforcement actions were brought in administrative proceedings, the report said. The change has also affected the speed in which the SEC resolved cases in 2015, with more than 80 per cent being settled on the same day the enforcement actions were initiated.
That is compared to 38 per cent of cases settled on the same day they were initiated when the actions were brought in civil courts, the report said.
The SEC has defended its use of administrative proceedings, saying they are beneficial because they produce prompt decisions and are presided over by judges who are knowledgeable about securities laws.
The report also found that about 85 per cent of SEC enforcement actions in 2015 involved alleged violations of reporting or disclosure provisions for securities laws or the Foreign Corrupt Practices Act.