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January 5, 2022

Enforcement: SEC Pounds Its Chest for Wins, Clams Up for Losses

If you visit the litigation releases page on the SEC’s website, you’ll come away with the impression that the agency has a better record in the courts than the Harlem Globetrotters have on the court.  The SEC has an impressive litigation track record, but it does lose one every now and again – including a recent high-profile defeat in an insider trading case.

You’re unlikely to find anything about this or any other SEC loss in an enforcement proceeding on its website, because the agency rarely makes a public statement about its losses. Former SEC Assistant Director of Enforcement Russ Ryan says that’s not right:

In this June 2013 Wall Street Journal op-ed titled “Mum’s the Word About SEC Defeats,” I called out the SEC for its troubling refusal to update its website when it loses or dismisses an enforcement case that it previously touted. After all, I argued, the agency routinely splashes its incendiary allegations of wrongdoing across its website and social media platforms upon filing a case – before it has proved anything – thereby instantaneously damaging the reputation and employability of the accused (and potentially tainting any future jury pool). And in cases it ultimately wins at trial, the agency typically posts a self-congratulatory announcement within hours of the verdict.

Is it too much to expect the SEC to do likewise when it loses or dismisses a case?

Of course not. It’s a matter of basic fairness and transparency. And given how infrequently the SEC loses a contested case, it’s not a heavy lift. The agency could simply post a short public statement acknowledging the outcome of the case and, better still, affix an electronic “sticker” to its previous postings about the case. Indeed, shortly after my “Mum’s the Word” op-ed appeared, the SEC actually started doing this type of thing, although the practice was inconsistently followed and the updates – when they appeared at all – sometimes weren’t posted until weeks or even months after the fact.

I think Russ Ryan makes a very solid point.  We aren’t talking about the Globetrotters here, but a government agency charged with developing, implementing and overseeing disclosure standards for public companies and other market participants. They ask a lot of those they regulate, and it’s not too much to ask that they adhere to high standards of transparency when it comes to their own activities.

John Jenkins