“Last time I went to the SEC’s website, I could still find the 2011 press release the SEC issued when they sued me (and another they issued where they spun my 2012 settlement as a “victory”), despite not proving a single allegation against me and despite the fact that every single SEC allegation heard on its merits by the court was dismissed on summary judgment as a matter law and undisputed fact…
…As you can see from the article below (and many others I have posted about the SEC on this blog), these lawyers at the SEC don’t seem to care much about anything other than their own reputation, as enforcers. From my experience, I don’t think they are very ethical or concerned about individual Americans’ rights. Given this, why do major law firms keep hiring from the SEC and why do corporate clients keep hiring law firms that hire from the SEC?”, Mike Perry, former Chairman and CEO, IndyMac Bank
Get the SEC Out of the PR Business
Crowing about prosecutions is inappropriate when the agency is also the one deciding guilt and innocence.
By Russell G. Ryan
Press releases are par for the course when the Securities and Exchange Commission files a case in federal court that it must later prove to a judge or jury. But the agency is increasingly shunting cases into its own administrative proceedings, where it initiates the prosecution and ultimately decides guilt or innocence—along with the severity of any sanctions—subject to only limited review in court.
Given the SEC’s peculiar quasi-judicial role in these cases, you might think the agency would refrain from gratuitously stoking prehearing publicity against the accused. Think again. The SEC now routinely issues press releases when it files charges in administrative cases it will eventually decide. This practice calls into question the agency’s ability to decide those cases fairly and impartially.
The SEC learned this the hard way 25 years ago. After Adrian Antoniu pleaded guilty to criminal insider trading in 1980, the agency began an administrative proceeding to decide whether to bar the stockbroker from the securities industry. While that proceeding was pending, then-Commissioner Charles Cox gave a speech in which he denounced Mr. Antoniu and suggested a bar was inevitable. The SEC barred Mr. Antoniu in 1987, but a federal appeals court overturned its action two years later and disqualified Mr. Cox from participating in any rehearing, concerned he had “in some measure adjudged the facts as well as the law of [the] case in advance of hearing it.”
The U.S. SEC logo Reuters
Another federal court likewise nullified Federal Trade Commission orders against Texaco in 1964 and Cinderella Career and Finishing Schools in 1970, both times because then-Chairman Paul Rand Dixon made derogatory public comments suggesting prejudgment. Due process, the court noted, requires administrative hearings not only to be fair but to convey “the very appearance of complete fairness.”
A separate ruling in the Cinderella Schools case broadly allowed federal agencies to issue fair and accurate press releases even in administrative cases they will eventually decide. The United States Court of Appeals for the District of Columbia Circuit reasoned that when an administrative complaint is already public, there is no good reason to prohibit the agency from issuing a public summary to make it comprehensible to reporters and other nonlawyers.
The court was troubled by the reputational damage these press releases can inflict, but cited the FTC’s “commendable” and “well intentioned” protocol of prominently including language acknowledging the unproven nature of its allegations and the right of the accused to contest them in a subsequent hearing. The court also stressed that the press release at issue in the case did nothing more than fairly and accurately summarize the official public action taken by the FTC.
Today’s SEC press releases lack these safeguards. Very few mention any upcoming hearing and none contain the kind of cautionary language extolled in the Cinderella Schools case.
SEC press releases also blur the distinction between allegation and fact. Sporadic sentences begin with verbiage acknowledging the unproven nature of what follows, but most are declarative statements without any caveat or, worse, begin with ambiguous phrases like “according to the Commission’s order.” Some releases—including one in July 2013 announcing administrative charges against hedge-fund titan Steven Cohen —claim that an SEC investigation has already “found” wrongdoing, though official facts are supposed to be “found” only after a subsequent hearing.
SEC releases also stray beyond a fair and accurate summary of agency action. Many confuse what happened by asserting—often in the headline or lead sentence—that the SEC “charged” the accused with wrongdoing. But at this initial stage only SEC staff employees, typically from the enforcement division, have “charged” any wrongdoing.
Commissioners, at least in theory, have merely scheduled a hearing to determine whether the employees can prove their charges—a determination the commissioners are supposed to make after an administrative judge conducts the hearing and makes a preliminary decision. Not surprisingly, media reports often reinforce the misperception that SEC commissioners are prosecuting these cases rather than deciding them.
One of the most troubling features of SEC prehearing press releases is the partiality they betray in favor of agency prosecutors over the accused. In virtually all cases, the SEC allows its prosecuting employees not only to ghostwrite the official press release but also to insert gratuitous quotations that embellish the formal accusations with more colorful words and phrases like “tricks,” “calculated fraud,” “reaping substantial profits,” and “choosing profits over compliance.” The accused is never extended similar courtesies.
When the SEC initiates enforcement action administratively rather than in court, it should embrace its primary role as impartial decision maker. That means resisting the urge to stoke prehearing publicity and maintaining strict neutrality in both fact and appearance.
By failing to do so, the SEC risks having administrative fines and other sanctions swept aside if a court someday concludes, quite reasonably, that agency press releases plausibly suggest prejudgment of cases or lack of impartiality. The agency may consider that scenario unlikely. But given its determination to prosecute more cases administratively, that may not be a risk worth taking.
Mr. Ryan, a former assistant director of enforcement at the SEC, is a partner with King & Spalding LLP, where his clients have included subjects of SEC press releases.