Administrative proceedings before an administrative law judge
Civil actions in federal court
Civil actions
In civil lawsuits, the SEC sues corporations and individuals who violate its rules. Defendants found liable may be required to pay hefty fines and surrender illegally acquired profits. The courts can bar or suspend a person from serving as a corporate officer or in any other securities industry capacity either for a specific period or for life. Similarly, firms can be stripped of their broker-dealer licenses and face other penalties.
And while the SEC can’t bring criminal charges on its own behalf, since it is empowered to enforce rules rather than laws, it can work with federal or state prosecutors to bring a criminal case against a firm or an individual. In criminal prosecutions, defendants can face imprisonment as well as fines or other penalties.
Change through court action
For example, in 2003 the SEC achieved a major settlement with 10 of the largest investment firms in the U.S. through a civil court case. The Global Research Analyst Settlement resulted in $1.4 billion in penalties and illegal profits from firms where analysts were alleged to have misled investors by skewing their research to favor the firms’ investment banking clients.
As part of the settlement, the firms also accepted new rules designed to prevent investment banking interests from influencing securities analysts, to improve investor access to independent analysis, and to help investors gauge analysts’ track records.
Common violations The SEC Web site
(www.sec.gov)
lists some of the more common violations that they investigate:
Insider trading Misrepresentation or omission of important information about securities Manipulation of market prices of securities Theft of customers’ funds or securities Violation of broker-dealer responsibility to treat clients fairly Sale of securities without proper registration
