The Securities and Exchange Commission overstepped its authority by embracing a retroactive civil monetary penalty fee hike that could spark lawsuits from broker-dealers and advisors with outstanding fees, securities attorneys warn.
WilmerHale attorneys told the agency in an Aug. 15 letter that the proposed retroactive effect of the SEC’s adjustments to its civil monetary penalty amounts that took effect by interim rule on Aug. 1 could not withstand judicial scrutiny.
Unlike other federal agencies, the SEC seeks to apply its penalty increases to violations that occurred before Nov. 2, 2015, when legislation signed by Congress required federal agencies to make adjustments to civil money penalties to “catch up” with inflation, the attorneys say.
“The SEC’s approach to the penalty increases is likely to generate litigation in enforcement actions as defendants contest the retroactive application of the increases,” Matthew Martens, partner in WilmerHale’s securities department and former chief litigation counsel in the SEC’s enforcement division, told ThinkAdvisor in an email message.
In some instances, Martens adds, “the penalty increases are quite significant, approaching as much 30%.”