One System of Justice for Securities Firms, Another for Their Customers

March 2, 2016

One System of Justice for Securities Firms, Another for Their Customers

Groups Call on House Financial Services Committee to Reject Legislation That Would Undermine Securities Law Enforcement

WASHINGTON, D.C. – The U.S. House of Representatives Financial Services Committee should reject an extraordinarily disingenuous piece of special interest legislation that would make it more difficult for the U.S. Securities and Exchange Commission (SEC) to hold brokerage and investment companies accountable for securities law violations, seven groups said today in a letter (PDF).

The seven groups – Americans for Financial Reform, Public Citizen, the Center for Justice and Democracy, Consumer Action, Consumers for Auto Reliability and Safety, Main Street Alliance, and the National Association of Consumer Advocates – urged committee members to reject HR 3798, the so-called Due Process Restoration Act. The legislation would reinforce a two-tiered justice system, making it easier for firms suspected of securities law violations to evade justice, including firms that deny basic due process to their investors and customers through forced arbitration.

Like other federal agencies, the SEC has authority to bring administrative proceedings against entities that violate federal securities law, in addition to civil actions. HR 3798 would allow respondents in SEC administrative proceedings to unilaterally terminate those proceedings, leaving the SEC to either refile in federal court or drop the charges. The bill also would significantly raise the burden of proof in administrative proceedings, requiring the SEC to show clear and convincing evidence that the company violated the law – a significantly greater burden than the civil standard of a preponderance of the evidence.

Many SEC-regulated companies that would benefit from this bill use forced arbitration in their standard contracts – fine print used to block harmed parties from vindicating their rights in court, no matter how egregious the wrongdoing. It is astoundingly hypocritical to grant further legal protections to companies accused of wrongdoing while these same companies refuse to grant their own customers access to courts, which is supposed to be a basic legal right, the groups said.

“These special protections are unnecessary,” the letter reads. “Respondents in SEC hearings enjoy robust opportunities for discovery, a public hearing, and a decision made by a neutral administrative law judge with subject matter expertise. When respondents are found to have violated the law, they are entitled to two full appeal processes, including a review in federal court.”

The seven organizations urged the committee to support an amendment offered by U.S. Reps. Keith Ellison (D-Minn.) and Stephen Lynch (D-Mass.), which, as they point out, “highlights this hypocrisy by rendering HR 3798’s special protections inapplicable to respondents that use forced arbitration against consumers and investors.”

“HR 3798 widens the gulf between everyday Americans and moneyed interests,” the letter concludes. “To truly restore due process rights for all Americans, members should oppose HR 3798, and also, as we have previously urged, support legislation restricting the use of forced arbitration, including HR 1098, the Investor Choice Act, and HR 2087, the Arbitration Fairness Act.”

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