Commissioner Aguilar Calls for Greater Clarity of Enforcement Orders

August 10, 2015

SEC Commissioner Aguilar, who is set to leave the SEC in the near future, issued a statement calling for greater clarity in written SEC orders. He stated that SEC orders need to contain sufficiently detailed facts so that there is no doubt as to why the SEC brought an enforcement action, why the respondent deserved to be sanctioned, and why the SEC imposed the sanctions it did.

Commissioner Aguilar noted that public concerns about recent SEC actions involving CCOs may be attributed, at least in part, to SEC orders that could have been clearer and more fulsome. For example, he stated that one commentator noted that, in a recent SEC action charging a CCO with violations of Rule 206(4)-7 of the Investment Advisers Act of 1940, the SEC order could have been clearer by including more facts to distinguish misconduct that warranted an enforcement action from conduct that is merely “naïve and ineffective.”

It bears noting, he stated, that SEC orders, as a matter of practice, often do not include all the facts developed by the staff in its investigations. Indeed, to be legally sufficient, SEC orders need only include the basic facts necessary to support the charges alleged. Furthermore, where respondents are settling with the SEC, the facts included in SEC orders are oftentimes negotiated. Thus, unlike the more complete investigative facts that are provided to the SEC as part of enforcement recommendations, the settled orders are often subject to intense negotiations between the SEC staff and settling respondents’ counsel. At times, there may be evidentiary facts that respondents’ counsel are adamant about removing from the order as part of the settlement terms. Because achieving a just and speedy resolution through settlements is very often in the public interest, and as the staff tries to avoid undue delays, this often means not going to war over every single word in a negotiated order.

In closing, Commissioner Aguilar stated that clarity is important for a number of reasons. First, as to the case at hand, a clear order allows the public to know what misconduct occurred that led to an enforcement action, what the respondent did wrong, why the respondent’s misconduct was wrong, and what sanctions and remedies are being imposed as a result of the misconduct. Second, a clear order provides guidance going forward as to what is, or is not, acceptable behavior. This is a particularly impactful reason for clear and transparent orders, because it is important to provide clear guidance to numerous others about how best to perform their duties and comply with the federal securities laws.

Click here to access the statement.


Investment Advisers, Investment Companies