NSCP Currents

It’s Not Just About the Banks: Expanded Oversight and Rights for Respondents

While much of the discussion about the potential impact of the Financial CHOICE Act of 2017 (the “Act”) is focused on banks, the effect of the proposed reforms of the Act on the operation of the Securities and Exchange Commission (“SEC” or the “Commission”) is no less fundamental. Whether or not one agrees with the approach outlined in the Act, it is important to understand what those proposed reforms are and what they could entail for SEC staff (“staff”) and potential respondents in enforcement proceedings. In short, the proposed reforms would mean expanded rights for the subjects of SEC enforcement actions and additional constraints on SEC enforcement attorneys.

The legislation is purported to ensure that defendants are not denied due process as a result of certain actions the staff have been able to initiate in their “home court”, i.e., the administrative proceeding framework. In addition, the Act imposes a series of reforms about the operations of the Commission itself, combined with providing new protections for targets of investigations and enforcement actions. For example, it has long been the case that there is limited information as to whether the staff is closing an investigation. The new Act will not only now require that the staff initiate a formalized and much more expedited process for closing cases, but also inform people when that investigation is closed. Section 817 of the Act requires the SEC “establish a process for closing investigations”, formal or informal, “in a timely manner” and inform “persons who are the subject of the investigation that the investigation is closed.”1

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