You Need to Be Careful When Settling an SEC Administrative Case
Settling with the SEC is never easy.
The SEC, routinely, attempts to introduce factual findings from an administrative proceeding against other parties in a subsequent enforcement action. In particular, the SEC has attempted to use these settements against a non-settling party, sometimes arguingthat that case law will permit it despite the language contained in the SEC settlement agreement stating it could not be used against another person or entity in the proceeding or another proceeding start. Unfortunately, there is conflicting court decisions where certain courts have held that it could be used while others under the Federal Rules of Evidence have indicated that it could not be used.
Further in SEC v. Pentagon Capital Management PLC, 2010 WL 985205 (SDNY March 17, 2010), the court held that the orders instituting proceedings were admissible to defend against SEC allegations. The court held, essentially, that these findings could be used against the SEC, but not against the defendants. The Tambone court did not rule upon the SEC’s opposite claim.
Given the emerging nature of this body of law, struggles will continue leaving an uncertain path for entities and individuals who may be subjected to this application.