SEC may overhaul in-house court

The U.S. Securities and Exchange Commission may overhaul how its in-house court operates for the first time in two decades after high-profile defendants attacked the forum as unfair and unconstitutional.

Among the changes under consideration by the regulator is letting people sued in its administrative courts depose witnesses, according to a statement issued Thursday. Another proposal would give defendants more time to prepare for key hearings, the SEC said.

The concessions would mark a retreat for a regulator that has ramped up its use of administrative courts in recent years. In the proceedings judges hired by the SEC decide cases brought by the agency’s enforcement lawyers. Defendants including Patriarch Partners founder Lynn Tilton and a former Standard & Poor’s executive have sued to block the SEC from using in-house courts, arguing that the process lacks many of the legal protections that are available in federal courts.

Another outspoken critic of SEC practices is Mark Cuban, the billionaire owner of the Dallas Mavericks basketball team who successfully fought off agency charges of insider trading in 2013, winning a jury trial in Dallas.

After learning of Thursday’s development, Cuban told the Star-Telegram via Twitter that “every citizen should have access to a jury trial. Not the rigged system the SEC has created.”

SEC commissioners voted Thursday to seek public comment on the reforms for 60 days, according to the statement. Commissioners would have to hold a second vote for the changes to become binding. The proposals “seek to modernize” how the agency’s in-house court operates, said SEC Chairwoman Mary Jo White, who didn’t address the criticisms or legal challenges the regulator faces.

“I’m very surprised to see this because it’s the first significant change to the administrative forum in 20 years,” said Stephen Crimmins, a former SEC enforcement attorney who is now a partner at Murphy McGonigle. “These amendments still don’t go as far as many would like in giving defense counsel the full range of tools available to them in federal court.”

Judges in New York and Atlanta have blocked SEC proceedings after ruling that administrative law judges should be appointed by the president or by the SEC’s commissioners, rather than through the regulator’s normal hiring process.

A U.S. appeals court in New York is considering the issue in an appeal by Tilton, the so-called Diva of Distressed, who is trying to have her case heard in federal court. The SEC accused her in March of increasing her fees by misleading clients about the value of certain investments.

Staff writer John Gravois contributed to this report.

This story was originally published September 24, 2015 at 9:03 PM with the headline "SEC may overhaul in-house court."