TITLE

The SEC on a Forum Shopping Spree: SEC Enforcement Power and Control Person Liability After Dodd-Frank

AUTHOR(S)
Gates, Brianna L.
PUB. DATE
November 2013
SOURCE
Iowa Law Review;Nov2013, Vol. 99 Issue 1, p393
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act ('Dodd-Frank") in response to the collapse of the United States economy. Prior to Dodd-Frank, two separate circuit splits existed. One circuit split affected the Securities and Exchange Commission's ("SEC") ability to bring control person liability actions against executives whose subordinates violated securities laws. The other circuit split concerned the proof requirements in control person actions. This lack of uniformity made it difficult for the SEC to hold executives accountable for securities violations that occurred under its watch, as the SEC was both unsure as to whether it could bring control person liability claims altogether in some jurisdictions, and in others it seriously questioned the likelihood that it could succeed. Partially attributing the recession to financial regulation failures, Congress and President Obama, via Dodd-Frank, responded by expanding the SEC's subpoena powers, by granting it nationwide subpoena power for civil actions, and resolving one of the circuit splits, ensuring the SEC's ability to at least bring control person liability claims in all jurisdictions. However, there remains a circuit split over the proof requirements attendant to such actions. While some circuits impose relatively lenient requirements, under the Second and Third Circuits' rigorous standard, one who controls a person who was liable for a securities violation can be held liable to the same extent as the controlled person (i.e., the primary violator) only upon a showing that he or she culpably participated in the violation. In light of the SEC's newfound subpoena power and its solidified ability to institute enforcement actions in all jurisdictions, it may now seek to avoid the Second and Third Circuits' rigorous "culpable participation " standard, and thus engage in undesirable forum shopping. Forum shopping can create unnecessary expenses and lead to injustice. Accordingly, this Note argues that the Supreme Court should finish what Dodd-Frank started, resolve the remaining circuit split by rejecting "culpable participation" and thereby strengthen the SEC's enforcement power while avoiding SEC forum shopping.
ACCESSION #
91947018

 

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