Can I Appeal an SEC Settlement??

An agreed SEC resolution is ordinarily unappealable, as respondents who accept settlements are deemed to have waived their rights to review. If the SEC sought to impose a judgment against you rather than the settlement you signed, then the judgment could typically be appealed (or other procedural remedies pursued) as determined by the law in the relevant forum. With the SEC settlement judgment in place, however, the forum, any-specific consent language in the settlement judgment, any specifically preserved objection (which would still be subject to the rule that consent judgments are generally not reviewable), and the applicable deadlines, and not the specific terms of the negotiated resolution, determine whether a limited scope of review or vacatur is available.

Importantly, neither the SEC’s “neither admit nor deny” language nor any other language in a settlement agreement is sufficient to preserve appellate rights. If you need to appeal the terms of an SEC settlement agreement or judgment, you need to contact experienced SEC attorneys.

2. How does the SEC Division of Enforcement start?

The SEC’s Division of Enforcement is responsible for investigating suspected violations of federal securities laws. It is often referred to as the SEC’s “enforcement division.” SEC matters may start as informal inquiries or formal investigations. Often, matters that start as informal inquiries end with no further action; those that do, however, are typically a precursor to a formal investigation.

With formal investigations, the Division of Enforcement has a broad range of subpoena power (though subpoena power in the SEC’s investigative process is not unlimited, and there are substantive and procedural limitations that apply).

Although the Division of Enforcement does not typically examine companies for general compliance purposes, SEC examiners in the Division of Examinations sometimes discover compliance issues that they refer to the Division of Enforcement for investigation.

While SEC staff in the Division of Enforcement does sometimes close matters without recommending enforcement action, this is not a typical outcome.

1. Can I seek review of an SEC Commission settlement order?

SEC Rule of Practice 240(c)(7) requires the SEC’s Division of Enforcement to include a provision in all settlement offers in administrative proceedings expressly waiving the respondent’s right to “a hearing before the Commission,” any “appeal to the United States Court of Appeals,” and “judicial review of the Commission’s judgment, if applicable.” When respondents accept settlements and sign, seal, deliver, and return the settlement orders to the Commission, this waiver becomes effective. Then, normally, the settlement becomes an unreviewable order.

Still, Commission settlement orders can be challenged in circumstances where limited review or vacatur is available. Petition for review of an SEC Commission settlement order in an administrative proceeding can be filed under either the Exchange Act or Securities Act (or both). With respect to the Exchange Act, Section 25(a), 15 U.S.C. Section 78y(a), provides for petition for review by “ a person aggrieved by a final order of the Commission … in the United States Court of Appeals for the circuit in which he resides or has his principal place of business, or for the United States Court of Appeals for the District of Columbia Circuit . . ..” With respect to the Securities Act, Section 9, 15 U.S.C. Section 77i, similarly provides for petition for review in the appropriate circuit court of appeals.

2. What are the key aspects of seeking review under Section 78y of the Exchange Act?

Section 78y of the Exchange Act requires the filing of a petition for review within 60 days after the order becomes final (which is immediately upon its issuance in most SEC settlement cases). Under Section 78y, the petitioner may choose the circuit in which the petitioner resides, conducts business, or the District of Columbia. With respect to review by the U.S. Court of Appeals for the District of Columbia Circuit, certain additional substantive and procedural requirements apply.

Under Section 78y(c)(1), generally, any objection that was not “made to the Commission” in the underlying administrative matter cannot be raised on review. However, this is subject to a “review de novo” exception for objections that could not have been made to the Commission due to their nature. In any event, while the scope of judicial review of Commission orders is broad, it is subject to the discretionary power of the appellate court and the SEC’s procedural rules, as well as additional substantive and procedural requirements under Section 78y of the Exchange Act and Section 78u (relating to SEC investigations and formal orders of investigation).

3. Does filing a Section 78y petition or a motion for reconsideration stay the order?

No, filing a petition for review under Section 78y of the Exchange Act or seeking reconsideration under SEC Rule of Practice 470 does not, in and of itself, result in a stay of the enforcement of a Commission order. A respondent seeking a stay must affirmatively request one from the Commission. In a formal investigation, an SEC investigation may proceed under a Commission investigative order, and such orders are issued under Section 78u of the Exchange Act.

1. Can I preserve my right to appeal an SEC settlement judgment in federal court?

Yes, a federal-court consent judgment may preserve the ability to appeal specific issues. Federal courts treat SEC consent judgments as contract judgments and impose the same standard of review as imposed in general contract disputes. If the parties reserve their appellate rights in an SEC consent judgment, then a district court should only impose a “narrow” scope of review (assuming the reserved issue is “ripe” and review is “appropriate”).

However, to effectively reserve rights to appeal the consequences of an SEC settlement judgment, settlement discussions must involve an experienced securities litigation attorney. If you negotiated a settlement and it was entered as a federal-court SEC consent judgment, you should contact experienced securities litigation attorneys immediately to determine whether your appellate rights have been preserved and what options remain.

2. What governs appeals of SEC judgments from federal district courts?

Appeals of SEC judgments from federal district courts are governed by the Federal Rules of Appellate Procedure and other applicable provisions of the Federal Rules, not the SEC-specific review provisions of the Exchange Act or Securities Act.

The deadline to file an appeal of an SEC settlement judgment is typically 60 days. While Federal Rule of Appellate Procedure 4(a)(1)(A) provides for a 30-day appeal deadline in most cases, Federal Rule of Appellate Procedure 4(a)(1)(B)(ii) provides for a 60-day appeal deadline when the U.S. government or any of its agencies is a party to the judgment.

While federal judges can alter or amend judgments (Federal Rule of Civil Procedure 59(e)), you must file a timely postjudgment motion to the District Court to take advantage of the District Court’s ability to alter or amend its judgment. The deadline for filing such a motion under Rule 59(e) is usually 28 days. Some timely postjudgment motions suspend the appellate deadline under Federal Rule of Appellate Procedure 4(a)(4).

3. Do contested SEC enforcement cases continue through trial and appellate review?

Yes, contested SEC enforcement matters continue through trial, and their results are often appealable. As a result, an SEC enforcement case can settle as late as trial day. However, after litigation has been commenced, the SEC will often seek a preliminary or permanent injunction in federal district court, and may seek a temporary restraining order (TRO) as an interim measure. If you are facing litigation with the SEC or if your company is facing an enforcement action, you should contact an experienced securities litigation attorney as soon as possible.

If you are facing this situation, Spodek Law Group handles federal criminal defense matters nationwide, from offices in New York and Los Angeles.

1. Can I vacate or modify an entered SEC consent judgment?

Secured consent judgments in federal courts can be vacated or modified. Like other judgments, consent judgments in SEC cases are subject to challenge for (i) absent consent, (ii) missing jurisdiction, or, (iii) terms that exceed the parties’ underlying agreement. Consent judgments may also be challenged under Federal Rule of Civil Procedure 60(b), which allows a party to seek relief from an entered judgment for “mistake, inadvertence, surprise, or excusable neglect,” “fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party, a newly discovered piece of evidence, or, any other reason justifying relief,” “the judgment is void,” “the judgment has been satisfied, released, or otherwise discharged,” “any other reason justifying relief,” and “the judgment is no longer equitable.”

While Rule 60(b) generally requires any motion for relief to be made within a reasonable time, Rule 60(c)(1) establishes a specific outer deadline in only one case. First, Rule 60(b)(1)-(3) motions must be filed within both a reasonable time (which can vary by circuit) and one year after the entry of the judgment in question. Second, Rule 60(b)(5) motions require showing that “enforcement of the judgment . .. is no longer equitable.” Although Rule 60(b)(5) does not include a specific deadline, motions for relief under Rule 60(b)(4)-(6) need only be made within a reasonable time.

Appellate courts generally review district courts’ Rule 60(b) decisions for abuse of discretion. To file a Rule 60(b) motion, you must seek relief in the issuing district court, not the United States Court of Appeals.

While challenging a judgment in federal court is typically prohibited under the law of claim preclusion, this is usually limited to challenging judgments by way of separate lawsuits. Direct review of an SEC settlement judgment or consent judgment, on the other hand, is permissible.

2. What is the difference between direct review and filing a motion under Federal Rule of Civil Procedure 60(b)?

Direct review, filing a motion under Federal Rule of Civil Procedure 60(b), and pursuing a separate lawsuit are all potentially-available means for challenging an SEC judgment or consent judgment. Direct review and Rule 60(b) motions differ in the following respects, among others:

• The venue for seeking a Rule 60(b) remedy is the issuing district court, whereas a petition for direct review is filed with the appropriate appellate court.
• There are different procedural limits on the grounds for a Rule 60(b) remedy, the grounds for seeking direct review, and the grounds for seeking relief in a separate lawsuit.

3. Why was the appeal deadline not 30 days in this case?

The appeal deadline in an SEC matter is governed by the Federal Rules or other applicable law, not by prior cases. Currently, Federal Rule of Appellate Procedure 4(a)(1)(B)(ii) requires an appeal to be filed within 60 days in cases when the U.S. government or any of its agencies is a party to the judgment. As a result, the appeal deadline in the case at issue would have been 60 days.

1. Does SEC v. Jarkesy invalidate my settlement?

No, SEC v. Jarkesy, 603 U.S. 109 (2024), does not invalidate the consequences of a valid Commission settlement or consent judgment. In Jarkesy, the U.S. Supreme Court dealt with a contested SEC administrative adjudication involving civil penalties for fraud. Jarkesy does not apply to voluntary Commission settlements or consent judgments in federal district courts.

While respondents in SEC matters have the Seventh Amendment right to a jury trial in federal district courts, they can validly waive this right. When respondents enter into an SEC settlement or consent judgment, then they voluntarily waive their Seventh Amendment right to a jury trial.

2. Who recommends charges in an SEC enforcement case?

The SEC’s Division of Enforcement handles securities-law enforcement matters. It is common for the SEC’s enforcement staff to conduct an investigation and, then, formally recommend that the SEC bring an enforcement action (which may take the form of a Commission administrative proceeding or a federal-court civil case). While the enforcement staff is responsible for conducting the investigation and proposing enforcement action, the Commission determines whether, and if so, when, to bring charges against the party or parties it is targeting.

Because the Commission retains ultimate authority, the Division of Enforcement cannot bind the Commission to any specific enforcement terms before receiving final Commission approval. Once an enforcement case has been filed in federal court or before the SEC, the Division of Enforcement can be authorized by the Commission to negotiate a settlement.

3. Can the SEC prosecute criminal charges?

No, the SEC has no criminal enforcement authority. The Department of Justice (DOJ), not the SEC, is responsible for prosecuting criminal cases (which may or may not be related to securities offenses) in federal court.

The SEC and DOJ are separate agencies. The SEC will frequently share information with the DOJ, and DOJ prosecutors will often work with SEC staff to gather information. As a result, the SEC and DOJ can both run investigations and pursue enforcement matters concurrently.

Speak With a Federal Defense Lawyer

If you are dealing with any part of what this article describes, the next step is a conversation with a lawyer who handles these cases. Spodek Law Group is a second generation criminal defense firm practicing since 1976, representing clients nationwide from offices in New York, Brooklyn, Queens and Los Angeles. Call 212-300-5196 to speak with our team.