Supreme Court scales back SEC’s enforcement power

Investing

The Supreme Court ruled on Monday to scale back the Securities and Exchange Commission’s enforcement power, handing a major victory to Wall Street firms, according to article in Reuters by Sarah Lynch and Lawrence Hurley.

The decision provides more certainty and predictability to the enforcement process for Wall Street firms, the article explained.

From Reuters:

In a 9-0 ruling, the Supreme Court found that the SEC’s recovery remedy known as “disgorgement” is subject to a five-year statute of limitations. The justices sided with New Mexico-based investment adviser Charles Kokesh, who previously was ordered by a judge to pay $2.4 million in penalties plus $34.9 million in disgorgement of illegal profits after the SEC sued him.

Nick Morgan, a Los Angeles-based lawyer with the Paul Hastings law firm who represents clients being investigated by the SEC, said the ruling will especially affect complicated cases that require more time for the SEC to investigate.

The court case carries similarities to the ongoing landmark case between the Consumer Financial Protection Bureau and PHH, in which the breadth of regulatory authority is being challenged.

That case began with CFPB Director Richard Cordray adding a $103 million increase onto a $6 million fine initially levied against PHH for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks.

PHH fought the fine, arguing that Cordray did not have the authority to increase the fine. Under Cordray’s decision, PHH violated the Real Estate Settlement Procedures Act every time it accepted a kickback payment on or before July 21, 2008. This went far beyond Administrative Law Judge Cameron Elliot’s ruling, which had limited PHH’s violations to kickbacks that were connected with loans that closed on or after July 21, 2008. According to PHH, the CFPB can’t retroactively apply the law. 

The U.S. Court of Appeals for the D.C. Circuit is currently listening to the CFPB/PHH case. 

Leave a Reply