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Who Wins in SEC Administrative Proceedings?

A handful of recent SEC defeats in administrative proceedings have caused us to question the conventional narrative that the SEC has a distinct “home field advantage” before its own administrative law judges.  According to analysis conducted by the Wall Street Journal, the SEC had a 90% win rate in contested cases it brought before its ALJs from October 2010 through March 2015, while it prevailed in only 69% of federal court trials over the same period.  After the SEC lost five high-profile insider trading trials in 2014, this narrative seemed to fit.

But perhaps the tide has turned. During the past two fiscal years, the Commission has lost a handful of contested administrative proceedings (here, here, and here).  Our analysis of ALJ opinions from October 2014 through the present reveals the SEC had only an 81% win rate in contested ALJ matters, while it prevailed in 91% of federal court trials over the same period.

Since October 2014, the SEC’s ALJs have issued 31 opinions on contested matters, and by our count the Enforcement Division has 24 outright wins, 3 losses and 4 mixed verdicts.  Analyzing the “mixed” verdicts requires some judgment. We viewed the matter where the SEC successfully obtained fraud findings against 9 of 10 respondents as a win for the SEC. However, we viewed the following 3 mixed verdicts as losses:

  • Where the ALJ ruled against the SEC on most claims against two respondents, dismissing allegations against one respondent and imposing only a nominal penalty on the other;

  • Where the ALJ found in favor of a pro se respondent on the majority of the SEC’s claims and ordered only a nominal penalty and no injunctive relief or disgorgement; and

  • Where the ALJ found that the respondent violated the law but declined to impose any sanction whatsoever.

  • Our analysis omitted cases that were resolved by summary disposition before a hearing, and partial settlements where the respondent consented to a judgment on the merits while contesting disgorgement and penalty amounts. As a result, we view the SEC’s record as 25 wins and 6 losses, a win rate of approximately 81%.

Notably, approximately 7 of the SEC’s administrative wins involved pro se respondents who proceeded to the hearing without counsel.  It is likely that if the SEC had initiated those cases in federal court, the outcome would have been resolved on summary judgment before trial.  Excluding those cases from the analysis, the SEC’s win rate in administrative proceedings drops to 75%.

We have also reviewed the SEC’s results in federal district court for the same time period, from October 2014 to the present. Bruce Carton’s blogs have summarized the SEC’s trial scorecard for fiscal year 2015, and fiscal year 2016 to date, indicating the SEC’s record over that time is 8 wins, 1 loss and 2 mixed verdicts. We would count the two “mixed” verdicts (BankAtlantic and Willie Gault trials) as “wins” for the Enforcement Division, based on the SEC’s success on most claims and the substantial penalties/disgorgement/injunctions imposed.

  • For example, in BankAtlantic, the jury found substantially in favor of the SEC on fraud claims it brought against the entity and its CEO.

  • In the Willie Gault trial, although the SEC lost on the most serious fraud charges, it prevailed on multiple lesser charges and ultimately secured a final judgment ordering over $200,000 in penalties and disgorgement and an officer/director bar. Even omitting the Gault trial, the SEC’s win rate would be 90%.

Based on this data, it appears the SEC has recently been less successful in actions tried before its ALJs than it has been in federal court. Perhaps the explanation can be linked to a general increase in the number of administrative cases of various types, along with a reduction in the number of contested insider trading cases in federal court.  After the Second Circuit’s December 2014 decision in United States v. Newman, the SEC may be more reluctant to pursue certain insider trading cases–the types of matters that it typically brings in federal court, with varying degrees of success. Granted, it is a small sample size for both federal cases and administrative proceedings.  However, since Dodd Frank authorized the agency to bring most types of matters in administrative proceedings against even non-registered entities and individuals, there has been a marked increase in the number of ALJ proceedings.  We believe the trend is worth monitoring.

Special thanks to our summer associate Peter Fishkind for his contributions to this post.

© 2020 Proskauer Rose LLP. National Law Review, Volume VI, Number 221

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About this Author

Joshua Newville, Proskauer Rose, regulatory enforcement attorney, industry compliance legal counsel, securities exchange commission lawyer
Partner

Joshua M. Newville is a partner in the Litigation Department in New York. His practice focuses on commercial litigation and regulatory investigations. Mr. Newville advises companies and individuals in securities litigation and compliance matters. He also focuses on internal investigations and enforcement matters. Prior to joining Proskauer, Josh was senior counsel in the U.S. Securities and Exchange Commission’s Division of Enforcement, where he investigated and prosecuted violations of the federal securities laws. Josh served in the Enforcement Division’s Asset...

212-969-3336
Samantha Springer, Proskauer Law Firm, Litigation Attorney
Associate

Samantha Springer is an associate in the Litigation Department. Samantha handles a variety of complex commercial litigation matters, with a particular focus on contract disputes, business torts, insurance coverage matters, and regulatory investigations and enforcement proceedings. Samantha’s practice also includes white-collar criminal defense work. She has handled matters in both federal and state courts, as well as before arbitration forums.

In addition, Samantha maintains a diverse pro bono practice and has represented indigent clients in family court, as well as criminal defendants in federal court. Samantha also coordinates Proskauer’s mentorship program with Francis Lewis High School in Fresh Meadows, New York, through which firm lawyers train students in oral advocacy. She has been recognized as Empire State Counsel by the New York State Bar Association for her pro bono work.

212-969-3446