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July 15, 2013 at 11:39 AM
Are RIAs and other financial professionals guilty until proven innocent? Not quite, but the burden of proof on the part of the SEC against those accused is so low it might appear that way. It could easily result in a lifetime bar from the advisors’ main source of income.
Russell Ryan, a former assistant director of the SEC’s division of enforcement, exposes the mark regulators must reach to win their case. In a Wall Street Journal op-ed on Monday, Ryan argues the SEC can impose quasi-criminal penalties based on the mere “preponderance of evidence.”
Using the trial of ex-Goldman Sachs vice president Fabrice Tourre, set to begin this week, as a jumping off point, he employs a sports metaphor to indicate just what Tourre will face.
“Envision a one-possession football game with the government team receiving the kickoff,” Ryan writes. “Beyond reasonable doubt requires the government to score a touchdown to win; clear and convincing evidence requires a field goal; and preponderance of evidence requires advancing the ball at least an inch past the 50-yard line.”
It’s the last that the SEC must demonstrate in the Tourre case, with which Ryan takes issue.
“Even in civil cases, however, charges of fraud are often subjected to an intermediate standard that requires proof by ‘clear and convincing evidence.’ Oddly enough the SEC usually isn’t held to this standard either, even when it accuses people of fraud.”
