By Chip Phinney and Geoff Friedman
As we have discussed before, the SEC’s increased use of in-house administrative proceedings in enforcement actions involving allegations of fraud has been a subject of considerable debate. Commentators have questioned the fairness of proceedings where the SEC gains an automatic home field advantage by bringing claims before its own administrative law judges (ALJs), with appeals being heard by the SEC’s own commissioners. But a determined defense can still defeat the SEC by ensuring that it plays by the rules, as demonstrated by a decision issued last week by the U.S. Court of Appeals for First Circuit in a case where Mintz Levin attorneys Jack Sylvia, Andy Nathanson, Jess Sergi, McKenzie Webster, and Geoff Friedman represented one of the petitioners.
The First Circuit vindicated two former employees of State Street Global Advisors (SSgA) who had been targeted by the SEC for alleged securities violations during the 2007 subprime mortgage crisis. Despite applying the highly deferential “substantial evidence” standard of review for agency factfinding, the First Circuit concluded that the SEC abused its discretion in holding Mintz Levin’s client, former SSgA Vice President James Hopkins, liable under Section 17(a)(1) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5. The First Circuit also vacated the Commission’s order holding Mr. Hopkins’ co-defendant, SSgA CIO John Flannery, liable under Section 17(a)(3) of the Securities Act.
Continue Reading First Circuit Overturns SEC Commissioners’ Sanctions Order