In today's WSJ, Russell Ryan argues that the SEC is puffing its press releases beyond the bounds of what is legally and ethically appropriate:
Press releases are par for the course when the Securities and Exchange Commission files a case in federal court that it must later prove to a judge or jury. But the agency is increasingly shunting cases into its own administrative proceedings, where it initiates the prosecution and ultimately decides guilt or innocence—along with the severity of any sanctions—subject to only limited review in court.
Given the SEC’s peculiar quasi-judicial role in these cases, you might think the agency would refrain from gratuitously stoking prehearing publicity against the accused. Think again. The SEC now routinely issues press releases when it files charges in administrative cases it will eventually decide. This practice calls into question the agency’s ability to decide those cases fairly and impartially.
He then reciews the relevant case law, persuasively arguing that the SEC is routinely violating the relevant standards.
SEC press releases also blur the distinction between allegation and fact. Sporadic sentences begin with verbiage acknowledging the unproven nature of what follows, but most are declarative statements without any caveat or, worse, begin with ambiguous phrases like “according to the Commission’s order.” Some releases—including one in July 2013 announcing administrative charges against hedge-fund titan Steven Cohen —claim that an SEC investigation has already “found” wrongdoing, though official facts are supposed to be “found” only after a subsequent hearing.
Ryan does not mention the SEC's further offense of trumpeting charges but never acknowledging losses. Mark Cuban provides an excellent case in point. A 2008 press release announced that:
"Insider trading cases are a high priority for the Commission. This case demonstrates yet again that the Commission will aggressively pursue illegal insider trading whenever it occurs," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement.
Scott W. Friestad, Deputy Director of the SEC's Division of Enforcement, said, "As we allege in the complaint, Mamma.com entrusted Mr. Cuban with nonpublic information after he promised to keep the information confidential. Less than four hours later, Mr. Cuban betrayed that trust by placing an order to sell all of his shares. It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market."
With only one qualifying phrase acknowledging that the statements made by the SEC relate to allegations, on balance the press release sounds as though Cuban has already been found to have "betrayed" a trust by committing "illegal insider trading."
In any case, whether you think that press release helps prove Ryan's point or not, consider that the SEC never issued a press release acknowledging that a jury found for Cuban and not the SEC. An impartial arbitrator would give losses at least as much publicity as victories.
