Russell G. Ryan, a former assistant director at the Securities and Exchange Commission’s division of enforcement and a current securities lawyer, recently said that Congress should not allow the SEC to impose excessively harsh financial penalties.
A bill sponsored by Sens. Charles Grassley (R-Iowa) and Jack Reed (D-R.I.) would establish more severe penalties for financial crimes. The legislation, if enacted, would be the sixth time that SEC penalties have been increased in the past 30 years, according to Bloomberg.
“There is scant evidence that increasing penalties again would improve deterrence or financial compliance, but that is a secondary concern with the bill,” Ryan said, Bloomberg reports. “More troubling is that Congress is incrementally blurring the line between civil regulatory enforcement and criminal punishment, reflecting an eerie indifference to due process and the proper constitutional allocation of law enforcement responsibility.”
Ryan said that the SEC, though primarily a regulator and not a law enforcement agency, operates outside of the executive branch, because officers are unelected and cannot be removed by the president.
“To the extent they engage in law enforcement, they do so on thinner constitutional ice,” Ryan said, according to Bloomberg. “The presumption of innocence in SEC cases is negligible, because the agency doesn’t need to prove guilt beyond reasonable doubt; it is enough if guilt appears just slightly more probable than innocence. Moreover, the right to remain silent is of little comfort, because the SEC can treat silent as evidence of guilt and draw an ‘adverse interference’ against the defendant.”
Ryan also said that other constitutional rights are not applicable in the SEC’s civil cases. U.S. courts maintain that the double-jeopardy clause preventing successive imposition of penalties against defendants does not apply in SEC cases, and the courts usually do not restrict “excessive fines” under the Eighth Amendment in SEC cases.
Under the 2010 Dodd-Frank Act, the SEC can impose financial penalties without proving its case before an independent judge and jury.
“Until recently, it was unthinkable that the SEC could inflict severe monetary punishment on ordinary citizens and companies without this basic check and balance, but Dodd-Frank abandoned that notion with barely a whisper of debate,” Ryan said, according to Bloomberg.
Ryan said that under Grassley and Reed’s proposed legislation, safeguards preventing excessive penalties by the SEC would be removed.
“Making ‘punishment fit the crime’ is a nice sound bite, but civil SEC remedies have no legitimate role in punishing crimes,” Ryan said, Bloomberg reports. “Those who insist otherwise need to acknowledge that draconian SEC penalties constitute punishment that warrants the full panoply of due-process rights before they are imposed. That means proof beyond reasonable doubt, jury trials and no ‘adverse interferences’ drawn from remaining silent. It also means SEC penalties should be mutually exclusive of criminal punishment for the same offense and challengeable as excessive under the Eighth Amendment. Finally, it means having a right to competent defense counsel, including appointment at public expense, if necessary.”