Tuesday, October 4, 2011
The SEC just can't catch a break in the courts. To cite just two recent examples: Judge Rakoff's begrudging approval of the agency's settlement with Bank of America over the Merrill Lynch merger, calling it "half-baked justice;" the D.C. Circuit's vacating of the proxy access rule because of inadequate analysis of its competitive impact. And now Judge Pauley, in the S.D.N.Y., refuses to sign off on a bill submitted by a claims administrator in an SEC settlement, because the administrator failed to justify its requested fees and the SEC appeared to conduct no meaningful oversight. SEC v. Zurich Financial Services (S.D.N.Y. Sept. 30, 2011).
As Judge Pauley explains, the SEC nominated Garden City Group (GCG) as claims administrator to distribute a $25 million in an SEC action against Zurich Financial Services, because GCG was the claims administrator in a $84.6 million private securities class action settlement against the same defendant involving the same misconduct. GCF charged a total of approximately $360,000 to administer the private class action fund; it submitted a bill of approximately $1.1 million to settle the SEC action. The only support for the charges was an invoice that provided no description of the services rendered or the rates charged. Worse, the invoice totalled only $870,000; the balance was not supported by any documentation. The judge had, in a previous litigation, warned the SEC about its responsibility to review and audit fees submitted by its nominees, and he is clearly very displeased about the agency's continued laissez-faire attitude. In particular, the judge questions the expenditure of about $529,000 in publication costs without any assessment of whether such an expensive notice program was necessary or effective.
Clearly, what bothers the court, at least in part, is the agency's cavalier disregard for the court throughout the process: the court had to prod the SEC to propose a distribution fund, and the agency did not keep the court informed throughout the distribution process. The fee application was the final straw: "In ostrich-like fashion, the SEC does not even bother to submit a single piece of paper on GCG's cumulative motions for payment of fees and expenses totalling $1,083,911.88."
So I wonder: has the agency's performance become so bad, or have judges become more demanding or less forgiving about the agency's performance? Has the SEC become the punching bag for the judiciary as well as for Congress (which seems to hold oversight hearings on a continuous basis).