The Securities and Exchange Commission appears to be hearing the music.  In response to the many voices that have expressed dissatisfaction with the procedures used in SEC administrative hearings, the SEC today issued proposed amendments to the rules governing those hearings.  Those proposals are now subject to public notice and comment.

The SEC’s proposals would (i) adjust the timing of administrative proceedings, including by extending the time before the hearing occurs, (ii) expand parties’ discovery rights by allowing depositions of witnesses, (iii) provide additional guidelines for the appeals process, and (iv) require parties to file and serve papers electronically and to redact certain sensitive personal information.  The proposals’ overall effect would give respondents more leeway to defend themselves and would make administrative proceedings more court-like in some respects.

Timing of hearings.  The SEC’s procedural rules have been criticized for not allowing respondents sufficient time to prepare and present their defenses in administrative proceedings.  The proposed rules would extend the timeframe in three ways:

  • The deadline for the administrative law judge (the “ALJ”) to file his or her initial decision would run from the time that post-hearing briefing or briefing of dispositive motions or defaults has been completed, rather than from the date of service of the Commission’s order instituting proceedings.
  • The proposed rule would provide a range of times during which the hearing must begin.
  • A procedure would be created for extending the deadline for initial decisions by up to 30 days.

Discovery.  The proposed rules would provide greater discovery rights.  Depositions would be allowed even if the proposed deponent could testify at a hearing.  The SEC and respondents would each be allowed three depositions in single-respondent cases and five depositions in multiple-respondent cases.  Deposition procedures would be generally consistent with those under the Federal Rules of Civil Procedure.  Depositions on written questions would be allowed either by stipulation or upon demonstration of good cause.  Depositions and expert-witness disclosures could be discussed at prehearing conferences.

Appeals to the Commission.  The proposed rules would revise the processes for appealing ALJs’ initial decisions to the Commissions.  Petitioners would no longer need to set forth all of the specific findings and conclusions to which they take exception.  Instead, petitioners would need to provide only “a summary statement of the issues presented for review,” and petitions would be limited to three pages.  Petitioners would then be able to focus on those issues at greater length during the briefing process – although their briefs would not be allowed to incorporate pleadings or filings by reference.  The Commission would ordinarily be required to issue its decision within eight months from completion of the briefing, unless the Commission determines that the complexity of the issues warrants additional time – in which case the decision should issue within ten months after the completion of briefing.  However, if the Commission determines that it cannot meet the eight- or ten-month timetable, it may extend that period by orders as it deems appropriate in its discretion.

The SEC’s proposed rules are attached here and here.

We previously blogged about various constitutional challenges to SEC administrative proceedings here, here, here, here and here.  As we observed, those cases have raised questions about the structure and fairness of ALJ proceedings.  The Commission’s new proposed rules could be viewed as a step toward addressing the attacks on the procedural fairness of ALJ proceedings, although they do not deal with the constitutional challenges to the appointment of ALJs or to the equal-protection arguments that some respondents have raised.