Balancing Deterrence with Due Process

As a member of the Subcommittee on Capital Markets in the House Committee on Financial Services, I participated in a hearing on Tuesday titled, “SEC Enforcement: Balancing Deterrence with Due Process.” This hearing delved into legislation to enhance oversight of the Securities and Exchange Commission (SEC).

The SEC Division of Enforcement, established in 1972, was created to investigate and prosecute federal securities law. However, it cannot bring criminal charges, typically referring them to a federal court. Alternatively, cases can be prosecuted before the SEC’s own administrative law judges (ALJs). Over the past decade, the SEC has increasingly used ALJs – rather than federal courts – to adjudicate enforcement actions for the sake of “efficiency.” The SEC’s reliance on these quasi-judicial administrative proceedings is a concern because it risks depriving defendants of their right to due process. As well, the length of time that it takes for the SEC to investigate is often far too long for the ordinary American to survive.

During the hearing, I questioned witnesses to find a balance for improved direction and supervision of the SEC enforcement actions. While robust enforcement is necessary to uphold investor protection, it is equally important to ensure that individuals and entities subject to the SEC are afforded fair treatment and due process rights.

Proposed legislative measures could bolster transparency and fairness within the SEC enforcement framework. Engaging in constructive dialogue and seeking solutions will strengthen the effectiveness of the SEC, providing safeguards. I am committed to advocating for policies that promote financial stability and accountability in our capital markets that protect investors and improve oversight.

You can watch my remarks here.