The Securities Litigation Expert Blog

Sutherland Issues Study of Enforcement Action Outcomes

Posted by Jack Duval

Dec 18, 2012 3:42:27 AM

Attorneys Brian Rubin and Jae Yoon of Sutherland's Litigation Practice Group have issued an interesting study on Finra and SEC enforcement actions.  (Sutherland)  Below is an extract:


SEC administrative proceedings are conducted before an ALJ, who is not a Commission employee, but who hears the proceedings pursu- ant to authority delegated by the Commission.7 The ALJ has the authority to, among other things, rule on evidentiary and discovery matters and generally “regulat[e] the course of a proceeding and the conduct of the parties and their counsel.”8 The ALJ also applies a preponderance of the evidence standard.9 At the conclusion of the hearing, the ALJ drafts the initial decision.10

During the Study Period, only seven respondents litigated against the SEC, and none convinced the ALJ to dismiss any charges. However, SEC respondents have had greater success in previous years, obtaining dismissal of 25.3% of charges.11


In FINRA proceedings, the Hearing Officer is a FINRA employee.12 FINRA hearings are conducted before a Hearing Panel with two cur- rent or former industry members and the Hearing Officer, who has the authority to hold pre-hearing and other conferences and resolve procedural and evidentiary matters, such as discovery requests, among other things.13 The Hearing Panel applies a preponderance of the evidence standard when determining whether violations have occurred.14 At the conclusion of the hearing, the Hearing Officer drafts the initial decision.15

During the Study Period, FINRA Hearing Panels considered 112 charges against member firms and individuals. These respondents convinced Hearing Panels to dismiss 16 charges, a success rate of 14.3%.16 Interestingly, FINRA respondents' success rate in getting charges dismissed during the Study Period was nearly double the rate for the two years prior to the Study Period, when respondents were able to obtain dismissals of 13 charges out of 178, or 7.6%.17 Although FINRA staff is not required to establish fraud under a more stringent evidentiary standard, they must still establish scienter,18 and respondents were more successful in obtaining dismissal of fraud charges than they were generally.19

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Topics: FINRA, litigation, Sutherland, SEC, enforcement actions

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