New S.E.C. Powers in Dodd-Frank Act

As the Dodd-Frank financial overhaul bill moved through Congress this summer, the Securities and Exchange Commission — virtually unnoticed — gained a powerful new weapon that could significantly increase the agency’s force and reach, Reuters writes.

A provision deep in the 2,323-page law empowers the S.E.C. to bring many more cases for monetary penalties in administrative courts, where the rules are more favorable to the government than in federal court.

Several constitutional and other due-process protections that are available to defendants in federal court — from the right to demand a jury trial to broad discovery rights — do not exist in administrative courts, which are part of the agency itself.

Until now, if the S.E.C. wanted to sue for monetary penalties and take advantage of the extra clout it had in an administrative law forum, it could only go after a limited class of players: those it directly regulated, like registered broker-dealers and investment advisers.

Under the new regime, the S.E.C. has the authority to go to administrative law judges to seek financial penalties from anyone whose activities in any way involve securities — hedge fund magnates, bank chief financial officers or even day-trading retirees.

The agency in the past could go after these people in an administrative law court, but only to ask for a “cease-and-desist” order, often after the alleged damage had already been done.

Getting this new power has been on the S.E.C.’s wish list for years. In 2008, a bill granting the commission authority to try more cases in administrative law courts passed in the House of Representatives, but the bill, sponsored by Paul E. Kanjorski, Democrat of Pennsylvania, died in the Senate.

This time, in the wake of the financial crisis and a growing consensus that the S.E.C. needed broader enforcement powers, the commission’s proposal easily slipped through.

Under the heading “Strengthening enforcement by the Commission,” it was added to the Dodd-Frank bill by Representative Barney Frank, Democrat of Massachusetts, during conference negotiations with the Senate in June. A review of the Congressional Record by Reuters Legal found that the provision, Sec. 929Pa, was not publicly discussed in either chamber

NYT

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