Last week, Andrew Ceresney testified before the House Financial Services in a hearing titled “Oversight of the SEC’s Enforcement Division.”
As highlighted below, Ceresney’s testimony touched upon Foreign Corrupt Practices Act issues and during the hearing Ceresney was on the hot seat regarding the surge in SEC administrative proceedings to resolve enforcement actions.
In his written testimony, Ceresney stated as following regarding the FCPA.
“Pursuing violations of the FCPA remains a critical part of our enforcement efforts, as international bribery saps investor confidence in the legitimacy of a company’s performance and undermines the accuracy of a company’s books and records, among other negative impacts. The Division, and particularly the specialized FCPA unit, is active in this area, bringing significant and impactful cases, often in partnership with its law enforcement and regulatory counterparts both at home and abroad. Last fiscal year, the Commission obtained orders for over $380 million in disgorgement and penalties in FCPA cases. In FY 2013, the SEC and DOJ released A Resource Guide to the U.S. Foreign Corrupt Practices Act. The guide takes a multi-faceted approach toward setting forth the statute’s requirements, providing insights into SEC and DOJ enforcement practices.
In today’s globalized marketplace, Enforcement’s ability to protect investors and maintain fair and efficient markets is often dependent on the Division’s ability to investigate misconduct that takes place, at least in part, abroad. In coordination with the SEC’s Office of International Affairs, the Division has expanded its efforts to obtain evidence of potential wrongdoing from around the globe. Many of Enforcement’s FCPA investigations rely on evidence obtained from foreign jurisdictions, and often are conducted in parallel with foreign governments. Other areas, such as financial reporting and accounting fraud, asset management, and insider trading, also often rely on evidence obtained through foreign regulators.”
Whether many of the SEC’s recent FCPA enforcement actions (such as Bruker Corp., Layne Christensen, Smith & Wesson and one against former employees of FLIR System, Inc ) were “significant and impactful” is of course subject to debate.
During the hearing, Ceresney found himself on the hot seat over the SEC’s prominent use of administrative proceedings to resolve enforcement actions. As highlight in this article, Rep. Scott Garrett (R-N.J.) reportedly stated as follows in an opening statement:
“While bringing more cases through the administrative proceedings can lead to lower costs for the agency and increases in efficiency, it’s important to realize that those benefits come with a cost. The cost is less due process protections for defendants.”
“Because the SEC’s administrative proceedings use the SEC’s procedural rules, respondents are forced to operate on a condensed timeframe and do not have the benefit of some of the fundamental due process protections under federal civil procedures.”
As noted in the article:
“Rep. Sean Duffy (R-Wis.) also hammered the agency’s head of enforcement, Andrew Ceresney, over the fairness of administrative law proceedings. Duffy questioned the SEC’s track record in these hearings, in which it won 100 percent of its cases last year.
“You won every case. How about with regard to the cases you brought in federal court? One hundred percent there? No, you won 11 out of 18 [cases]. You think there could be any correlation when you actually hire the judges, and you set the rules, that you win all the cases?” Duffy asked somewhat sarcastically.”
Concern as to the surge in the SEC’s use of the administrative process to resolve enforcement actions, including in the FCPA context, is warranted.
As highlighted in prior posts, of the seven SEC corporate FCPA enforcement actions in 2014, six (86%) were resolved through SEC administrative orders meaning there was not one ounce of judicial scrutiny.
Judge Jed Rakoff (S.D.N.Y.) has been among the more prominent critics of this surge. As highlighted in this prior post, Judge Rakoff has asked: “is the SEC becoming a law unto itself?”