On May 8, 2015, the Enforcement Division of the United States Securities & Exchange Commission (“SEC”) issued a memo outlining the approach it takes when determining the forum in which it will bring an enforcement action. The memo includes considerations which may impact the decision to select one of the two forum options available - a civil action in a federal district court or an action before the SEC’s in-house tribunal.

Specifically, the memo lists four factors which the enforcement division may consider in recommending one of these two forums to the Commission:

  • The availability of the desired claims, legal theories, and forms of relief in each forum;
  • Whether any charged party is a registered entity or an individual associated with a registered entity;
  • The cost-, resource-, and time-effectiveness of litigation in each forum; and
  • Fair, consistent, and effective resolution of securities law issues and matters.

The SEC memo stresses that application of these factors is not subject to a “rigid formula” and “not all factors will apply in every case.” The memo is available at: http://www.sec.gov/divisions/enforce/enforcement-approach-forum-selection-contested-actions.pdf.

The final factor will undoubtedly be of particular interest to potential defendants. For those matters which are “likely to raise unsettled and complex legal issues under the federal securities laws,” the memo reveals a preference for adjudication by the SEC’s in-house tribunal: “[I]n light of the Commission’s expertise concerning those matters, obtaining a Commission decision…may facilitate development of the law.”

This admitted preference will likely do little to quiet the discontent which preceded the SEC’s memo. The SEC has been criticized for utilizing its “home court advantage” by bringing enforcement actions before its own tribunal. Just last week, SEC agency head, Mary Jo White, was pressed by the Chairman of the Senate Appropriations Subcommittee as to whether the SEC intended to provide public guidance on its process for determining the forum in which an action should be brought. White responded that “the appearance of fairness is important” and she was “considering…whether we should do public guidelines.” The SEC memo followed only three days later.

Although the SEC memo represents a step towards increased transparency, many questions still linger. The memo addresses the technicalities of the forum selection process, but fails to examine the overall fairness of the process. In the absence of such an examination, the SEC memo offers little solace to those concerned about the SEC’s motivations for bringing particular actions before its in-house tribunal.

For questions or further information, please speak to your regular Bryan Cave contact, a member of our Broker-Dealer Litigation, Arbitration and Regulatory Practice, or the authors of this client alert:

Jeffrey J. Kalinowski
Partner, St. Louis
Tel 1 314 259 2949
jeff.kalinowski@bryancave.com  

Jason A. Kempf
Associate, St. Louis
Tel 1 314 259 2306
jason.kempf@bryancave.com  

Richard H. Kuhlman
Partner, St. Louis
Tel 1 314 259 2820
rick.kuhlman@bryancave.com

Lindsay E. Wuller
Associate, St. Louis
Tel 1 314 259 2943
lindsay.wuller@bryancave.com