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What can the director of the SEC's Division of Enforcement do?

Regulatory team, Cadwalader Wickersham & Taft, New York, 4 January 2021

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Over the years, in Rule 200.30-4, the commissioners at the US Securities and Exchange Commission have given their director of enforcement plenty of discretion to make some unilateral decisions. They have just widened the number of powers that she can exercise.

On 30 December the SEC amended that rule to delegate some new functions to the director, Stephanie Avakian (to be performed by her or by someone under her direction whom the SEC chairman has appointed). She now can:

  • apply to the federal courts to seek customers' financial records from financial institutions without prior notice to the customers (using s21(h)(2) Exchange Act);
  • institute public administrative proceedings and issue orders with respect to a security based on the issuer's alleged failure to file required periodic reports (using s12(j) Exchange Act);
  • grant extensions to submit proposed distribution plans;
  • appoint tax administrators;
  • publish notices of proposed plans;
  • issue orders adopting plans; and
  • approve disbursements, payment of administration fees and final fund 'accountings' with respect to disgorgement funds and Fair Fund plans in administrative or cease-and-desist proceedings.

Here is an abbreviated version of the updated list, which empowers the director to do the following.

(1) To designate officers empowered to administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence and require the production of records in the course of investigations.

(2) In non-public investigative proceedings, to grant requests of persons to procure copies of the transcript of their testimonies.

(3) To close all investigations authorised by the SEC pursuant to various sections of the Securities Act 1933, the Securities Exchange Act 1934 and the Investment Company Act 1940.

(4) To end people's authority to administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of records in the course of investigations instituted by the SEC.

(5) To grant or deny applications made pursuant to Rule 193 of the Commission's Rules of Practice.

(6) To notify the Securities Investor Protection Corporation (SIPC) of facts concerning the activities and the operational and financial condition of any registered broker or dealer in financial difficulties.

(8) To make certain written demands upon non-resident investment advisors.

(9) To administer the provisions of section 24(d) Securities Exchange Act 1934.

(10) To institute subpoena enforcement proceedings in federal court to seek an order to compel the production of documents or an individual's appearance for testimony pursuant to subpoenas.

(11) To authorise staff to appear in federal bankruptcy court to preserve the SEC's claims in connection with investigations .

(12) Pursuant to section 36 Securities Exchange Act 1934, to review, grant or deny exemptions from rule 17a-25 of the Act.

(13) To order the 'making' of private investigations.

(14) To submit witness immunity requests to the US Attorney General.

(15) With respect to debts arising from actions to enforce the federal securities laws, to terminate collection activity or discharge debts, to accept offers to compromise debts when the principal amount of the debt is $5 million or less, to reject offers to compromise debts, and to accept or reject offers to enter into payment plans.

(16) To disclose information that is bound to reveal the identity of an informant. [The SEC uses the term 'whistleblower.']

(17) With respect to disgorgement and Fair Fund plans established in administrative proceedings instituted by the SEC, to appoint a person as a plan administrator.

(18) With respect to enforcement proceedings in a federal court, to: (i) dismiss claims against entities that are defunct, the subject of federal or foreign bankruptcy proceedings, or without material assets; and (ii) dismiss claims against persons or entities that duplicate or overlap with other pending claims against them in some circumstances.

(19) To file applications in a federal court to seek an order pursuant to section 21(h)(2) Securities Exchange Act 1934.

(20) To institute proceedings pursuant to section 12(j) Securities Exchange Act 1934 with respect to a security based on the issuer's alleged failure to file required periodic reports.

(21) With respect to disgorgement funds and Fair Fund plans established in administrative or cease-and-desist proceedings instituted by the SEC pursuant to the federal securities laws, to: (i) grant extensions of time to submit proposed distribution plans to the SEC; (ii) appoint tax administrators; (iii) publish notices of proposed plans; (iv) issue orders adopting plans as to which no negative comments have been received; (v) approve disbursements to investors in accordance with the plans; (vi) approve payment of the fees and expenses of administration; and (vii) approve final fund 'accountings.'

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