SEC To File Some Insider-Trading Cases In-House

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SEC To File Some Insider-Trading Cases In-House

The SEC will begin filing some insider-trading cases in an in-house court rather than federal court, despite protestations by defense attorneys arguing that this would be an unfair shift from past practice. These attorneys often complain that the SEC administrative proceedings lack the procedural protections that are available in federal courts, such as taking depositions, spending more time gathering evidence, and presenting cases to juries. They believe that prosecuting insider trading cases in administrative proceedings would bring about significant change. Critics of the change also point out that there exists a conflict in administrative proceedings in that defendants must appear before the same five-member commission that authorized enforcement actions before they are able to appeal to a federal court.

While the SEC has brought insider-trading cases as administrative proceedings in the past, it has been pretty rare. And the agency expects this practice to increase moving forward. Traditionally, the SEC filed insider-trading cases in federal courts because it was barred by law from seeking penalties in its own court against employees of firms it did not regulate directly, including brokerages. However, in 2010 the Dodd-Frank law gave the SEC power to seek financial penalties against a bigger pool of defendants, including public company employees, giving the agency an incentive to file more administrative cases. Few yet, though, have involved insider trading. In fact, one such case, against Goldman Sachs Group Inc. director Rajat Gupta, was filed administratively but later dismissed and re-filed in federal court.

The change follows a string of insider trading losses in federal court, including cases against sTec Inc. founder Manoucher Moshayedi and Wynnefield Capital Inc. fund manager Nelson Obus. The SEC claims that filing insider-trading cases administratively is not a reaction to these losses and that it will still use federal courts because it can win higher penalties there. It also stated that even the threat of bringing administrative proceedings has already had an impact in that defendants have been more willing to settle cases after being threatened with administrative proceedings.

If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies.

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