By Douglas Gillison
(Reuters) – The U.S. Securities and Exchange Commission last month asked for the dismissal of all active misconduct proceedings against accountants sitting before its in-house judges, which legal experts said was a fresh sign that a recent Supreme Court ruling is curtailing the agency’s enforcement powers.
Between Aug. 2 and Aug. 19, the SEC’s enforcement division filed motions to dismiss eight enforcement actions pending before its administrative law judges, public filings show. In each case, some of which date back as far back as 2021, the agency had been seeking to discipline accountants for alleged malpractice.
The SEC offered no explanation for the decision and a spokesperson declined to comment.
Federal law allows the SEC to bring some enforcement actions before its in-house courts, a more streamlined process than suing in federal court and the SEC’s only option when it comes to malpractice cases, according to lawyers practicing in the area.
Legal experts said it was rare if not unprecedented for the agency to dismiss an entire category of administrative enforcement actions, and that the move was especially notable because in some cases the SEC was poised to win.
They said the SEC’s capitulation appeared to relate to a Supreme Court decision in June which barred the agency from using in-house judges in cases seeking fines for fraud. The court found doing so violated the U.S. Constitution’s Seventh Amendment right to a jury trial.
One of the eight dismissed cases targeted Edward Hackert, a New York accountant who in February counter-sued the SEC, arguing his proceeding was unconstitutional. He updated that suit on July 25 to cite the Supreme Court ruling.
While that ruling did not address whether using in-house courts for malpractice cases was unconstitutional, Hackert’s July litigation raised the risk the SEC could lose in court again, further curtailing its powers, the legal experts said.
The SEC filed its first motion to dismiss one of the eight cases on Aug. 2, and six days later sought to dismiss Hackert’s case.
That timeline suggests the SEC dismissals were a direct result of Hackert’s petition, showing how the Supreme Court ruling from June is weighing on the SEC’s enforcement powers, legal experts said.
“This seems like an example of an agency that has decided to voluntarily limit its enforcement activity due to concern that pursuing enforcement under long-standing practices will result in significant judicial incursions on that authority,” said Robert Glicksman, a law professor at George Washington University.
OTHER AVENUES
SEC officials accused Hackert of failing to properly supervise more than 200 audits of public companies and special purpose acquisition vehicles between 2012 and 2022, resulting in deficient audits. Hackert denies the SEC allegations.
Through a spokesman, his attorney, former SEC Enforcement Director Andrew Ceresney, declined to comment.
Nicolas Morgan, a former SEC senior trial counsel and the president of Investors Choice Advocates Network, a pro bono litigation firm, told Reuters that SEC officials’ decision to seek the dismissals of all contested malpractice proceedings simultaneously was likely unprecedented.
Last year, the SEC voluntarily dropped more than 40 administrative cases, but that was due to a technical mishap that officials said threatened the integrity of the process.
While the widely held view is that federal law requires the SEC to bring malpractice cases to the in-house courts only, Morgan said there could be avenues for the SEC to proceed in federal courts, though these were as yet untested.
In another of the cases marked for dismissal, the SEC accused Ira Viener, a New Jersey accountant, of performing deficient audits and lacking independence from the companies he audited. He told Reuters he was surprised when the agency suddenly dropped the case, which he said had been a painful ordeal.
“They were winning because they had deep pockets and I couldn’t afford to defend myself,” he said. “I did nothing wrong.”
Read the full article here
