The SEC announced Friday it had dismissed 42 pending enforcement cases after discovering enforcement staff had improper access to materials meant for commission officials ruling on those cases.
The watchdog agency, currently helmed by Gary Gensler, initially acknowledged in April of last yr that some employees in its enforcement division had improperly downloaded legal memos in 2017 related to 2 cases — each of which sought to challenge the legality of the in-house proceedings.
Access to those files was meant to be limited to the commissioners and attorneys who advise the SEC on rulings.
However the agency has now admitted that an internal review determined administrative staffers within the enforcement division improperly accessed documents that were specific to twenty-eight additional cases in litigation throughout the in-house court system.
Moreover, the review uncovered evidence of 61 other instances wherein enforcement division officials accessed memos that were “broadly applicable to quite a few pending matters” within the court system.
An internal SEC review found that there was no evidence that the improper access had any effect on decisions made by either enforcement staff or officials reviewing those cases, based on SEC officials.
“We deeply regret that the agency’s internal systems lacked sufficient safeguards surrounding access to Adjudication memoranda, and we’re continuing our work to be sure that, going forward, work product from the Adjudication staff is appropriately safeguarded,” the SEC said in a press release.
The SEC admitted improper access was more extensive than previously disclosed.REUTERS
“We take this lapse in controls very seriously and are committed to each informing the general public in regards to the scope of this issue and stopping any similar lapses in the longer term,” the agency added.
Law360 was first to report on the SEC’s disclosure.
One among the initial cases impacted by the breach, Cochran v. SEC, was decided within the Supreme Court last month.
The nation’s highest court ruled in favor of accountant Michelle Cochran, clearing the best way for defendants who’re targeted for enforcement motion via in-house legal proceedings on the SEC and the FTC to challenge their constitutionality in federal court.
“It’s the equivalent of a celebration in litigation accessing a judge’s briefs from her law clerks,” attorney Nick Morgan told the Wall Street Journal last yr. “This breach reinforces the issue with the SEC’s administrative process wherein the commission has total discretion to deprive parties of their ability to have matters litigated in federal court.”
The SEC said its review team’s findings were based on an intensive document review and interviews with greater than 250 current and former staffers across its enforcement division, the office of the secretary and the office of the overall counsel.
