Enforcement Division Explains Forum Selection Decisions
The SEC’s Enforcement Division has released a memo describing its approach to choosing to litigate in federal court or in its own administrative forum. The Division states that it will prefer administrative proceedings where (a) it can only litigate the claim in that forum (e.g. failure to supervise); (b) the conduct involves registered entities or persons especially when the Division seeks regulatory penalties such as industry bars; (c) the issues require the specialized knowledge of SEC Administrative Law Judges; or (d) the Division wants to expedite proceedings so that witnesses can remember events. The Enforcement Division will choose federal court where (a) the respondents/defendants include unregistered control persons or entities; (b) the Division seeks a TRO or injunction; (c) the issues involve laws other than federal securities laws; or (d) the Division needs to utilize the broader discovery tools available in federal court. Regardless, the Division notes that choice of venue depends on the specific facts and circumstances of every case.
OUR TAKE: Give the Enforcement Division some credit for increasing transparency into its forum decisions, even though it didn’t mention its extraordinary success rate in front of ALJs (see http://blog2.cipperman.com/2014/10/wsj-reports-that-sec-has-won-every-alj-case-in-past-12-months/. Potential respondents/defendants can utilize these criteria to help develop defense strategy.