Recent Rulings Can Help Securities Defendants Avoid Industry Bans

Federal district courts increasingly are expressing concerns about the effect being barred from the securities industry as part of a settlement will have on defendants’ livelihoods, even in cases where they acted with knowledge of wrongdoing.

In three recent litigated Securities and Exchange Commission enforcement actions involving violations of the Investment Advisers Act, courts have denied the SEC’s request for an injunction that would provide a jurisdictional basis for an administrative proceeding seeking a bar from future work in the securities industry. Meanwhile, constitutional challenges have constrained the SEC’s use of contested administrative proceedings where the SEC could seek a bar directly.

But the SEC appears routinely to require bars in settled actions involving scienter-based violations of the Act. There is tension between the SEC’s regular imposition of bars in a settled context and the SEC’s narrowing ability to obtain those bars through litigation.

Source: Recent Rulings Can Help Securities Defendants Avoid Industry Bans