Dodd-Frank Act Provision May Affect SEC Enforcement Settlements
(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)
August 19, 2010
The SEC has a new weapon in its enforcement proceedings, thanks to a provision in the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (848-page PDF). In an interesting article in DealBook, “Can the S.E.C. Avoid Scrutiny of its Settlements?” Professor Peter J. Henning points out that Section 929P of the Act “now allows the S.E.C. to impose a civil monetary penalty in an administrative proceeding ‘against any person’ who violates a provision of the federal securities laws.” Prior to enactment of the Act, the S.E.C. had to go to court to impose penalties against companies other than broker-dealers or investment advisors.
Professor Henning points out that this authority might have made a big difference in the SEC’s recently announced settlement of an enforcement proceeding against Citigroup over its disclosure of its exposure to subprime mortgages. Like the settlement in the Goldman Sachs proceeding, the Citigroup settlement is being delayed, as a federal district judge scrutinizes the settlement.
Under the new Dodd-Frank Act provision, Professor Henning says the SEC enforcement staff will be able to bypass the courts altogether on some types of proceedings by filing settled cases as administrative proceedings. This may allow the staff to act more quickly and impose sanctions on a greater number of companies more quickly. It’s hard to predict the impact of such a trend, however. The scrutiny of the judge in cases such as the Goldman Sachs settlement forced the SEC to get tougher in the final settlement, so the availability of administrative proceedings may make it easier for the SEC and its corporate targets to negotiate deals that are less tough than a federal judge would require. One way or another, however, the flurry of activity from the newly empowered SEC enforcement staff is sure to continue.