WASHINGTON, June 11 The U.S. Securities and Exchange Commission expects to start filing some insider-trading cases in an in-house court rather than federal court, dismissing concerns by defense lawyers that this shift from past practice would be unfair.
"I do think we will bring insider-trading cases as administrative proceedings in appropriate cases," Andrew Ceresney, head of the SEC enforcement division, told the District of Columbia Bar on Wednesday. "We have in the past. It has been pretty rare. I think there will be more going forward."
The SEC has historically filed insider-trading cases in federal courts because the law barred it from seeking penalties in its own court against employees of firms it did not regulate directly, such as brokerages.
But that changed in 2010, when the Dodd-Frank law granted the regulator power to seek financial penalties against a wider array of defendants, including public company employees.
That has given the SEC greater incentive to file more administrative cases, though few so far have involved insider trading. One, against former Goldman Sachs Group Inc director Rajat Gupta, was originally filed administratively, but later dismissed and re-filed in federal court.
Defense lawyers often complain that SEC administrative proceedings lack procedural protections available in federal courts, including the ability to take depositions, spend more time gathering evidence, and present cases to juries.
"Administrative proceedings lack these important features," said Stephen Crimmins, a partner at K&L Gates in Washington, D.C. and former SEC trial attorney.
"Prosecuting insider trading cases in administrative proceedings would be a significant change."
Critics also say the administrative proceedings process is conflicted because defendants must appear before the same five-member commission that authorized enforcement actions before they can appeal to a federal court.
Ceresney dismissed such concerns, saying administrative proceedings are fair.
The SEC's planned shift follows a string of recent trial losses involving insider trading.
On June 6, a federal jury found Manouchehr Moshayedi, the former chief executive of computer storage device company sTec Inc, not liable for trading on inside information ahead of a secondary stock offering.
About a week earlier, a Manhattan federal jury found Wynnefield Capital Inc fund manager Nelson Obus not liable on an SEC claim that he traded on inside information about a takeover, in a case that had dragged on for a decade.
Obus told Reuters in an interview Wednesday he was "shocked" and said administrative proceedings are a "kangaroo court."
"It makes me feel that they can't win in court with a jury of one's peers," he said.
Ceresney said filing insider-trading cases administratively is not a reaction to recent losses, and the SEC will still use federal courts because it can win higher penalties there.
But he conceded that even the threat of bringing cases in-house has had an impact.
"There have been a number of cases in recent months where we had threatened administrative proceeding ... and they settled," he said, referring to defendants. (Reporting by Sarah N. Lynch in Washington; additional reporting by Nate Raymond in New York; editing by Jonathan Stempel and Tom Brown)