Last month, the SEC proposed changes to its Rules of Practice involving administrative proceedings, which would require people involved in administrative proceedings to file and serve documents electronically and would also, among other things, adjust the timing of hearings in administrative proceedings, allow for discovery depositions, and clarify the rules for admitting hearsay and assertion of affirmative defenses.
Thursday, October 08. 2015
These proposed changes have been put forth in two separate releases, SEC Release No. 34-75877 (which contains information about the changes to the submission of documents for administrative hearings) and SEC Release No. 34-75976 (which covers the other changes).
Changes to Modernize the Filing Process in Administrative Proceedings
The SEC is currently developing an Internet-based electronic system to modernize the filing process and facilitate the flow of information to the public. This system would allow people involved with administrative proceedings to file and serve documents electronically. Because of this new system, the SEC is proposing to require electronic submission of all documents and other items.
The SEC proposed rule covers three main components:
– Persons involved in administrative proceedings who currently are required to file documents under Rules 151 and 152 of the SEC’s Rules of Practice would be required to file those documents electronically. This would be done through a secure system at www.sec.gov that is designed to receive the documents and attachments. Filing by fax or in paper format would not be permitted unless a certification has been filed that indicates a person reasonably cannot comply with the electronic filing requirement.
– Parties that are required to serve documents under Rule 150 would be required to serve the documents to each other electronically in the form and manner prescribed in the SEC’s guidance.
– Filers would be required to exclude or redact sensitive personal information from electronic filings and submissions in accordance with the Privacy Act of 1974. (Sensitive personal information has been previously defined by the SEC as a Social Security number, taxpayer identification number, financial account number, credit card or debit card number, passport number, driver’s license number, state-issued identification number, home address (other than city and state), telephone number, date of birth (other than year), names and initials of minor children, and any sensitive health information like medical records.)
There is a phase-in period for this proposed rule. For the first 90 days after the proposed rule becomes final, the SEC would require all filings to be made in both electronic and paper format.
Changes to the Timing of Hearings for Administrative Proceedings
The proposed amendments to Rule 360 include three modifications to the timing of a proceeding, as follows:
– The deadline for filing the initial decision would run from the time that the post-hearing briefing or briefing of dispositive motions or defaults has been completed, rather than the date of service of the order instituting proceedings.
– A range of time during which the hearing must begin, rather than a set time, would be provided. For example, currently a 300-day case would have a hearing occur within four months time. Under the proposed rule, that would change such that the hearing must be scheduled to begin between four and eight months after service of the order.
– A procedure for extending the initial decision deadline by up to thirty days would be created.
The SEC would also allow a stay pending SEC consideration of a settlement to stay these new timelines.
Changes to Depositions
The proposed amendments to Rule 233 would allow respondents and the Division to file notices to take depositions. For proceedings involving a single respondent, the respondent and the Division would be allowed to file notices to depose three people (providing for three depositions per side). For proceedings involving multiple respondents, that number would change to five people. Additionally, parties could request that the hearing officer issue a subpoena for documents in conjunction with the deposition.
The SEC intends that these amendments to Rule 233 “the use of depositions for discovery purposes”. Other amendments to Rule 233 outline procedures for deposition practice that are consistent with the Federal Rules of Civil Procedure.
Changes to Expert Witnesses
The proposed amendments to Rule 222 would provide for exceptions to the information that must be submitted by a party that intends to call an expert witness. The first exception is: drafts of any material that is otherwise required to be submitted in final form; the second is: communications between a party’s attorney and the party’s expert witness who would be required to submit a report under the rules, except under limited circumstances.
Additionally the proposal would require the disclosure of a written report for expert witnesses. This report would include such information as a complete statement of all opinions the witness will express, the basis and reasons for the opinions, the facts or data considered by the witness in forming them, any exhibits that will be used to summarize or support them, and a statement of the compensation to be paid for the expert’s study and testimony in the case.
New Methods for Serving an Order on a Person in a Foreign Country
The amendment to Rule 141 would expand the methods of service when serving an order instituting proceedings on a person in a foreign country. The new methods include:
– any method authorized by the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents,
– methods prescribed by the foreign country’s law for service in that country in an action in its courts of general jurisdiction
– as the foreign authority directs in response to a letter rogatory or letter of request
– service may be made by delivering a copy of the order instituting proceedings to the individual personally, or using any form of mail that the Secretary or the interested division addresses and sends to the individual and that requires a signed receipt (unless prohibited by the foreign country's law),
– any other means not prohibited by international agreement.
Changes to Appellate Procedures
The SEC is also proposing to change certain procedures that govern appeals. The first is to amend Rule 410(b) to eliminate the requirement that a petitioner submits a petition that includes all exceptions and supporting reasons, and the provision stating that if an exception is not stated, it may be deemed to have been waived by the petitioner. These changes are intended to prevent petitioners from submitting overly long petitions that provide lengthy
lists of exceptions that have little refinement of arguments and do little to narrow the issues to the most important issues.
Instead, petitioners would be allowed to file a petition that contains only a brief summary of the issues presented for review under Rule 411(b), which refers to prejudicial errors, findings or conclusions of material fact that are clearly erroneous, conclusions of law that are erroneous, or exercises of discretion or decisions of law or policy that the SEC should review. The petitioner would then be able to focus on a brief that contains reasoned arguments in support of the petition.
There are additional changes being proposed, such as an amendment to allow the SEC to redact sensitive personal information from documents that will be made available to respondents, clarifying amendments for other rules, and changes to the Rule 900 guidelines (which set forth the guidelines for the timely completion of proceedings, provides for confidential status reports to the SEC on pending cases, and directs the publication of summary information concerning the pending case docket).
Comments to the SEC for both proposed rules are due December 4, 2015.