Thursday, June 5, 2014

Securities Litigation-- 180 day enforcement proceeding under Dodd Frank

Readers, I was contacted by a securities attorney whom I know from practice regarding a potential pro bono appeal. 

The substantive issue involves securities disclosure violations by an Investment Advisor.  The Investment Advisor didn’t tell clients that he received compensation from a fund in which clients invested resulting in violations of the Investment Advisors Act Sections 206(1) and (2) for material misstatements, Section 207 (false and misleading Form ADP statements), and Section 204 (failure to amend Form ADP). 

The heart of the appeal, however goes to a 180 time period established by Section 929U of Dodd Frank, codified as Section 4E(a) of the Exchange Act ( Download Section 4E(a) Exchange Act), for the SEC to initiate a proceeding after sending a written warning.  The SEC filed the action 7 days late.  The SEC took steps to obtain an internal extension, but did not make a separate complexity determination (statutory extensions are authorized for "complex" cases).  The respondent has unsuccessfully challenged the SEC’s authority to bring the action outside of the 180 window ( Download SEC-Opinion).  At issue is whether the180 day time window is jurisdictionally determinative (meaning outside of it the SEC has no authority to bring the action).  Two prior Supreme Court cases have held that in the absence of consequences for a failure to comply with the time period, then the window is NOT jurisdictionally determinative.  Respondent takes issue with the precedent on the grounds the statute does contain a consequence (no action) and that it requires a complexity determination.  The Eastern District Court of New York addressed a similar issue (authority to bring enforcement action outside of 180 window) in 2013 and ruled that the SEC had authority to bring such an action.  The 2013 decision is available here

I raise these issues for 2 reasons, the first is practical.  The client is out of money to fund an appeal the attorney would like to identify pro bono collaborators interested in these issues.  The second, is that the case (and those like it) raise pretty interesting securities litigation (and administrative law) questions.  In a bizzaro world where your plate isn't full for the summer and you are interested in these issues, feel free to contact Tony Cochran at  

-Anne Tucker

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