In recent weeks, attention has turned to the Securities and Exchange Commission‘s declining success rate when going to trial against alleged wrongdoers. Publications such as the New York Times and Wall Street Journal have run multiple articles recently about this surprising decline. Per the Wall Street Journal, the SEC’s success rate has dropped to 55% since October, as opposed to the more than 75% success rate in the three consecutive years prior.
While the cases at the center of this decline were in the works well before Mary Jo White took the helm at the SEC, many are beginning to speculate how the Commission will react. Ms. White recently touted the then 80% success rate last year, citing it as a potential reason why attorneys counsel their clients to settle rather than face trial. However, this may be on the verge of changing. Emboldened by the newfound success of defendants in defending trials against the Commission, those who may find themselves in the SEC’s crosshairs may begin to opt to go to trial.
Recent cases, such as the insider-trading investigation and trial of billionaire Dallas Mavericks owner, Mark Cuban, have only intensified the public interest in the Commission and the work it does to investigate violations of the securities laws.
Manhattan U.S. Attorney Preet Bharara’s reported 79-0 record in securing convictions or guilty pleas in the U.S. Attorney’s Office’s recent crackdown on insider trading has only increased the pressure on the SEC in the public eye. While the two are not identical, to the casual observer, there may not be an apparent difference.
Complicating this situation even further is the agency’s stated objective of pursuing admissions of wrongdoing in some cases, even when settling. Since this could potentially expose the defendant to liability in separate civil suits, it bears watching whether or not those against whom the SEC pursues an admission of wrongdoing choose to take their chances at trial.
If targeted individuals and companies begin to opt for trial rather than settlement, the question then may become whether or not the Commission has sufficient resources to handle the increased caseload. For those who find themselves the subject of an SEC investigation, the impact could potentially mean better settlement offers for those against whom the Commission believes its case to be less strong.
There is also the potential for the SEC to triage resources, allocating the most resources to the cases it believe have the greatest likelihood of success. If this were to happen, it could very well mean that those against whom the SEC has the weakest cases may find that their cases are dropped following some pressure by their defense attorney.
Ultimately, the SEC will have to determine how to properly strike the balance between dropping cases that it will not win, settling those that it can, and pursuing cases that are going to have a result that is worth the effort. Most importantly, the Commission will have to learn to tell the difference between the three.
The attorneys at Malecki Law have experience representing individuals in regulatory actions before the SEC as well as FINRA. Contact us for a free consultation. Various hourly-billing and flat-fee based options are available to make smart decisions from inception to the completion of your matter.