Wall Street Cop Revises In-House Court After Claims of Bias

  • SEC changes to give defendants more power to depose witnesses
  • Lynn Tilton and others have said court is tilted against them

After months of criticism that its in-house court unfairly tilts justice against defendants, Wall Street’s top cop is making changes that could make the playing field more level.

The most significant alterations, which the Securities and Exchange Commission approved Wednesday, include giving those accused of financial misconduct more time to prepare for trial and stepped up ability to depose witnesses. While the SEC has said its administrative judges are independent arbitrators, defendants including Patriarch Partners founder Lynn Tilton have argued that the process lacks the legal protections available to them in federal court.

The makeover, originally proposed by the SEC last year, comes after the regulator ramped up the use of its own administrative courts to litigate cases in recent years. The 2010 Dodd-Frank law expanded the agency’s jurisdiction for using administrative law judges beyond investigations involving brokers and investment advisers and empowered judges to issue orders and levy fines that had previously been restricted to federal court.

While the amendments largely mirror those proposed by the SEC in September, the final rule was tweaked after industry groups such as the Financial Services Roundtable and the U.S. Chamber of Commerce argued that the changes didn’t go far enough.

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Updates include extending the pre-hearing period to as long as 10 months for longer cases compared with the SEC proposal of eight months. The agency also increased the number of witness depositions that defendants and SEC investigators can request.

Still, some argued that the changes didn’t go far enough. Representative Scott Garrett, a New Jersey Republican who leads a House subcommittee that oversees the SEC, said in a statement that the rules changes were “an extremely modest step in the right direction.” The Chamber of Commerce called for more changes to ensure “full discovery rights.”

During fiscal year 2015, administrative law judges issued 207 initial decisions, held 27 hearings, and ordered civil penalties of almost $21 million and disgorgement of more than $12 million, according to the SEC.

The final rule will take effect 60 days after being published in the Federal Register.

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