The Commission initiates an administrative proceeding by issuing an Order Instituting Proceedings, which contains the Division of Enforcement’s allegations against one or more respondents. In most cases, an Order Instituting Proceedings directs that a public hearing be held before an administrative law judge for the purpose of taking evidence, determining whether the allegations are true, and issuing an initial decision within a specific time period.
Administrative law judges serve as independent adjudicators. Under the Administrative Procedure Act and the Commission’s Rules of Practice, administrative law judges conduct public hearings at locations throughout the United States in a manner similar to non-jury trials in the federal district courts. Among other actions, they issue subpoenas, hold prehearing conferences, and rule on motions and the admissibility of evidence. Following the hearing, the parties may submit briefs, as well as proposed findings of fact and conclusions of law. The administrative law judge prepares an initial decision that includes factual findings, legal conclusions, and, if appropriate, orders relief.
If a respondent fails to file an answer to the Order Instituting Proceedings, appear at a conference or hearing, respond to a dispositive motion, or otherwise defend the proceeding, the administrative law judge may issue an initial decision on default and accept the allegations as true. In certain proceedings, summary disposition, as opposed to a live hearing, may be used to resolve all or some of the issues.
Depending on the statutory basis for the proceeding, an administrative law judge may order sanctions. Such sanctions include cease-and-desist orders; investment company and officer-and-director bars; censures, suspensions, limitations on activities, or bars from the securities industry or participation in an offering of penny stock; censures or denials of the privilege of appearing or practicing before the Commission; disgorgement of ill-gotten gains; civil penalties; and suspension or revocation of an issuer’s registered securities, as well as the registration of a broker, dealer, investment company, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. An administrative law judge may also order that a fair fund be established for the benefit of persons harmed by a respondent’s violations.
For fiscal year 2016, administrative law judges issued 170 initial decisions, held eleven hearings, and ordered approximately $12.4 million in disgorgement and approximately $14.5 million in civil penalties.
Initial decisions and orders appear in legal research databases and are posted on the Commission’s website, http://www.sec.gov/alj. An initial decision becomes final when the Commission enters a finality order. Parties may appeal an initial decision to the Commission, which performs a de novo review and can affirm, reverse, modify, set aside, or remand for further proceedings. The Commission may determine on its own initiative to review an initial decision. Appeals from Commission action are to a United States Court of Appeals.