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Ensuring Effectiveness, Fairness, and Transparency in Securities Law Enforcement

Washington, Jun 13 -

The Subcommittee on Capital Markets, Securities, and Investments held a hearing today to examine how the U.S. Securities and Exchange Commission’s (SEC) approach to enforcing Federal securities laws is complimentary to all three prongs of the SEC’s statutory mission to protect investors, to maintain fair, orderly, and efficient markets, and to facilitate capital formation. This hearing also discussed areas of the law that would benefit from greater clarity and transparency to ensure that our capital markets are fair, attractive, and efficient, including whether a lack of clarity between federal and at least some state standards for securities fraud or other potential securities violations is chilling participation in our capital markets.

Two legislative proposals were considered as part of these discussions:

• H.R. 2128, the “Due Process Restoration Act of 2017,” introduced by Representative Warren Davidson (R-OH), to amend the Securities and Exchange Act of 1934 to permit private persons to compel the Securities and Exchange Commission to seek legal or equitable remedies in a civil action instead of an administrative proceeding.

• H.R. 5037, the “Securities Fraud Act of 2018,” introduced by Representative Tom MacArthur (R-NJ), to provide for exclusive Federal jurisdiction over civil securities fraud actions.

“It is up to Congress to ensure that the SEC has the necessary tools to protect shareholders, deter and punish wrongdoing, and when appropriate, help compensate harmed investors,” said Subcommittee Chairman Bill Huizenga (R-MI). “Congress must identify any inconsistencies or disparities between state and federal laws and take appropriate action to ensure greater consistency and predictability in the application of the rules and regulations.”

Topline Quotes from Witnesses

“… The SEC as a whole overwhelmingly has sought to abide by its mandate and for the most part has been successful in doing so. Nevertheless, there is always room for improvement … In furtherance of its mission to protect investors and facilitate capital formation, the SEC should adopt clear standards and be more transparent with respect to its approach to penalties, disgorgement, and administrative proceedings.” – Bradley Bondi, Partner, Cahill Gordon & Reindel LLP

“When companies respond to allegations of improper activities, management’s focus is necessarily diverted from the day-to-day running of its business. That is a consequence of doing business in a regulated society. But, we believe there should be some understanding on government’s part that, in the current era, firms are frequently subject to multiple domestic and foreign regulators. Responding to multiple regulators with respect to the same conduct or transaction is not, and should be allowed to become, a regular attribute of doing business. It is counterproductive—and damaging to shareholders—to subject firms and individuals serially to multiple SEC inquiries or multiple regulators and self-regulators for the same alleged misconduct.”  – Thomas Quaadman, Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce

“Enforcement of the federal securities laws should be vigorous but fair. Fair treatment of defendants increases accuracy of results, promotes the legitimacy and acceptability of the enforcement process, fosters respect for the law, and therefore advances the statutory goals of encouraging capital formation while protecting investors and markets. The SEC enforcement process should be based on the rule of law and should provide each defendant with adequate advance notice of specific and identifiable standards of conduct, a meaningful opportunity to prepare and present a defense, and an ability to bring cases that lack merit to a rapid close.” – Andrew Vollmer, Professor of Law and Director, John W. Glynn Jr. Law & Business Program, University of Virginia School of Law