The SEC generally can bring enforcement actions in either of two forums – a civil action in federal District Court or an SEC administrative proceeding (and/or cease-and-desist proceeding) before an administrative law judge. On May 8, 2015, the Division of Enforcement provided guidance on the factors it considers when determining whether to recommend that a case be brought before an administrative law judge or in federal court. The division noted that the list of relevant considerations is not exhaustive and that it may in its discretion consider any or all of the factors in assessing whether to recommend that a contested case be brought in the administrative forum or in federal District Court.  

  • Certain claims, theories and relief are only available in one forum.  
    • Failure to supervise charges or causing another person’s violation must be pursued in the administrative forum. Liability as a controlling person or as a relief defendant musty be pursued in District Court actions.
    • Where emergency proceedings or relief is required, only a federal District Court can issue the necessary emergency relief to protect investors, such as a temporary restraining order, asset freeze and/or a document preservation order.
  • Associational bars and suspensions of registered entities and associated persons can only be imposed in an administrative proceeding. In addition, the division notes that the SEC and administrative law judges have extensive knowledge and experience concerning issues related to registered entities or associated persons.
  • The cost-, resource- and time-effectiveness of litigation in each forum will impact the choice of forum.
    • The division states that in general, hearings are held more quickly in contested administrative actions than in contested federal court actions.  Thus, the division would favor administrative action when a matter involves older conduct to allow for the presentation of testimony from witnesses who have a fresher recollection of relevant events or to permit a more timely public airing of the facts and circumstances of the conduct and practices at issue in an enforcement matter.
    • The division would also use the forum that would enable it to seek and obtain relief in a single proceeding such as in District Court when the division is recommending charges against multiple parties, including relief defendants as claims against relief defendants can only be pursued in District Court. The division noted that this also may be possible in the administrative forum, for example, in the regulated entity/associated person context described above or in situations where the division is recommending charges against multiple parties and no single District Court is a permissible venue for an action against each of the parties.  
    • The division noted that if the case can be decided on or narrowed by a summary judgment motion (which generally addresses a broad range of claims and issues), a federal court may be more efficient. Alternatively, a motion for summary disposition in the administrative forum typically addresses a narrower range of claims and issues. The division noted that District courts more frequently address and resolve elements of claims (such as whether a statement is false or whether an instrument is a “security”) on summary judgment.
    • The division would weigh the costs and benefits of the additional time and types of pre-trial discovery available in federal court, including that in administrative proceedings, the division must produce all non-privileged documents from its case file and the division has Brady and Jencks obligations, while depositions are available in District Court but generally not in administrative proceedings. The division will also consider whether witness testimony that is critical to fair resolution of the matter may be compelled in one forum but not another.
  • The division will consider whether the choice of forum provides a fair, consistent and effective resolution of securities law issues and matters.
    • If a contested matter is likely to raise unsettled and complex legal issues under the federal securities laws, or interpretation of the SEC’s rules, the division will consider whether, in light of the SEC’s expertise concerning those matters, obtaining an administrative law judge decision on such issues, subject to appellate review in the federal courts, may facilitate development of the law. Conversely, where application of state law or other specialized areas of federal law is integral to the matter, District Court may be appropriate.

Division of Enforcement Approach to Forum Selection in Contested Actions