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SEC Amends Rules of Practice for Administrative Proceedings

The SEC recently enacted amendments to its Rules of Practice for Administrative Proceedings, making changes first proposed by the Commission in September 2015. The new amendments address recent criticism regarding the SEC’s increased use of administrative proceedings and the perceived lack of due process afforded in such proceedings. The rule changes have two major objectives: lengthening the prehearing timeline for administrative proceedings and increasing certain discovery rights such as allowing for depositions.   The amended rules become effective 60 days after publication in the Federal Registrar and will govern all proceedings initiated on or after that effective date.

Some of the key rule changes include:

  • Initial Decision of Hearing Officer (Rule 360): As amended, under Rule 360(a)(2), the time period for preparation of initial decision must be designated in the instituting proceedings as 30, 75 or 120 days from completion of post-hearing or dispositive motion or finding of default. Amended Rule also increases the maximum duration of the pre-hearing period. The previous unilateral maximum of four months for all proceedings has been expanded to up to ten months for proceedings designated as 120 days, six months for those designated as 75 days, and four months for those designated as 30 days.
  • Depositions upon Oral Examination (Rule 233): The new Rule 233 will permit the right to notice up to three depositions per side for single-respondent cases and five depositions per side in multi-respondent cases in 120-day proceedings, with an additional two depositions available upon request in an expedited procedure. There are still no depositions permitted for 30-day or 75-day proceedings.
  • Answer to Allegations (Rule 220): Amended Rule 220 will require a Respondent in its Answer to disclose whether a “reliance” defense will be asserted and whether there was reliance on advice of counsel, accounts, auditors or other professionals in connection with any claim, alleged violation or sought remedy.
  • Experts (Rule 222): Rule 222 will require a party planning to call an expert witness to submit a statement of the expert’s qualifications with prior testimony of up to four years old and publications of up to ten years. Previously there were no such time limitations. Additionally, the Rule will now require filing of an expert report including:  (1) all opinions the witness will use and the basis and reasons behind them; (2) the facts and figures considered to form those opinions; (3) any exhibits used to summarize or support the expert’s opinions; and (4) all compensation paid to the expert.

Click here to view the SEC’s release