My partner, Ken Berg, writes about his recent meeting with the NCLA, a group that anyone who has an administrative practice should be familiar with.  –  Alan

I had the privilege of being invited to attend in Washington, D.C., on February 28, 2019, the inaugural panel discussion hosted by a relatively new nonprofit civil rights organization, the New Civil Liberties Alliance (“NCLA”). What distinguishes NCLA from most civil rights organizations is that it represents business enterprises and their principals who are impacted negatively by federal financial regulatory agencies that “systematically threaten[] the people’s constitutional freedoms.” It calls the SEC, CFTC and other federal agencies the “administrative state within the Constitution’s United States,” “allowing unelected bureaucrats to exercise all aspects of government power with little accountability to the people and their elected representatives ….” NCLA’s motto nicely sums it up: “Let legislators legislate. Let judges judge. Don’t let bureaucrats do either one.” (Check out www.NCLAlegal.org)

NCLA’s President, Professor Philip Hamburger, a constitutional scholar who teaches at Columbia Law School, writes:

Administrative tribunals sometimes apply inquisitorial methods, but even where their proceedings are adversarial, they do not live up to the Constitution’s procedural guarantees. The SEC, for example, can bring civil insider-trading cases in federal courts, or it can refer insider-trading cases to the Justice Department for it to prosecute criminally in such courts, and either way defendants get judges and juries and the full range of the Constitution’s applicable procedural rights. But the SEC can also pursue insider-trading cases before administrative law judges, who work for the commission, are not really judges, do not offer juries, and do not even allow equal discovery.

NCLA is off to a good start in advancing its mission. It appeared in the recent Supreme Court case, Lucia v. SEC, which declared SEC ALJs unconstitutional resulting in new trials for scores of respondents and is partly responsible for a recent change in the SEC Rules of Practice allowing depositions in administrative actions. NCLA filed a petition with the SEC to eliminate its practice of including a “gag order” in settlement agreements that prohibits a respondent from ever discussing his or her case or criticizing the agency’s handling of it—even if the respondent did not admit or deny the allegations in the complaint.

The panel discussion at the NCLA brought together prominent members of the defense bar to propose radical changes that would level the playing field for those subject to the regulatory reach of financial agencies. Emboldened by the Lucia victory, the group proposed challenging several long-standing administrative practices that the defense bar has all but given up objecting to; such as:

  • the low burden of proof (preponderance of the evidence),
  • the admission of hearsay,
  • the absence of a right to jury,
  • the Chevron deference on appeal given by courts to agency factual findings and legal interpretations, and
  • creating a respondent’s right to remove to court a proceeding initiated by the SEC administratively.

These ideas represent a re-thinking of the basic way the financial industry is governed. “The big ideas that will revolutionize the way we live will not emerge from our nation’s capital. They will be dreamt up, as they always have been, by enterprising Americans who hope to create positive value for others.” (Carl W. Scarbrough)

For now, however, the consensus of the defense bar in attendance was that the best defense starts with a firm’s initial contact with the regulator: the audit.

  • Be prepared.
  • Be responsive.
  • Provide documents and information.
  • Don’t be adversarial.
  • Engage legal counsel early to resolve issues quickly.

Regulators are most flexible and most reasonable during the audit and investigatory stages. At the “Wells” stage or when charges are filed, egos take-over and the litigator’s “win-at-all cost” mentality sets in. “[W]hen disputes reach the litigious stage, usually some malice is present on both sides.” Berlin v. Nathan, 381 N.E.2d 1367 (Ill. App. 1978).

Ulmer has been and continues to be on the forefront of these issues and a leading defender of those caught in the cross-hairs of financial regulators, including not only federal agencies like the SEC and CFTC but also the self-regulatory organizations like FINRA, NFA, and the exchanges. Please call us—early and often.

 

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Ken Berg

Ken has extensive experience in complex commercial and business litigation representing financial institutions. His expertise includes bank and broker-dealer defense; FCM/IB defense; SEC, CFTC, FINRA, NFA, and Exchange investigations and enforcement actions; trade secrets/unfair competition; and contract disputes. He has defended securities and commodities class actions in New York, District of Columbia, and Chicago federal courts. He also regularly represents financial institutions in arbitration actions at the NFA, FINRA, and AAA. Ken has achieved the highest rating, AV Preeminent®, from Martindale-Hubbell® and has been named an Illinois Super Lawyer and a “Leading Lawyer” in Illinois.