SEC Admits Errors in Enforcement Proceedings, Implements Mandatory Staff Training for 2024

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In a notable admission of procedural missteps, the U.S. Securities and Exchange Commission (SEC) has expressed “serious and deep regret” over errors made during a recent enforcement proceeding. This rare acknowledgment from the regulatory body came via a new filing, highlighting a commitment to rectify these inaccuracies and prevent future occurrences.

During a hearing on July 28, 2023, SEC counsel made statements later identified as inaccurate, a lapse not immediately rectified by the Commission’s attorneys. Further, the SEC acknowledged that certain assertions were based on inferences drawn from known facts rather than directly supported by factual evidence.

Corrective Measures to be Taken

In response to these shortcomings, the SEC has announced comprehensive corrective measures. Notably, the Enforcement Director has appointed senior attorneys from the Denver Regional Office to supervise this matter. Additionally, an experienced trial attorney from the same office will lead the litigation team, ensuring a higher standard of oversight and accuracy in proceedings.

Most significantly, the SEC has scheduled mandatory training for all Division of Enforcement staff. Set for January 2024, this training will focus on the critical importance of accuracy and candor in investigations and litigation and the duty to promptly correct any inaccuracies that come to light.

Sanctions are not Warranted

The Commission’s filing firmly stated that, despite these errors, sanctions are not warranted. The SEC argues that the circumstances do not align with the misconduct that Rule 11 intends to address, and there was no evidence of bad faith conduct that would justify sanctions under the Court’s inherent authority.

The enforcement case began in March 2023, led by staff attorney Joseph Watkins, who joined the Commission in January 2023. Watkins was supported by Laurie Abbott, a staff attorney since February 2016, and financial experts Karaz Zaki and Mitchell Davidson, both with extensive backgrounds in the Commission’s Division of Enforcement.

This development comes amidst ongoing efforts by the SEC to clamp down on investment fraud and other malpractices in the financial markets. The Commission’s proactive approach in acknowledging and rectifying these internal errors is seen as a positive step towards maintaining high standards of regulatory oversight, particularly in the fast-evolving landscape of financial markets.