Reuters logo
U.S. appeals court finds SEC cannot retroactively apply Dodd-Frank bans
July 14, 2015 / 10:09 PM / 2 years ago

U.S. appeals court finds SEC cannot retroactively apply Dodd-Frank bans

WASHINGTON, July 14 (Reuters) - Punitive industry bans created by the 2010 Dodd-Frank Wall Street reform law cannot be applied to defendants whose misconduct predated the law, a U.S. appeals court ruled on Tuesday.

In a unanimous decision by the U.S. Court of Appeals for the District of Columbia, the judges found that the Securities and Exchange Commission was wrong to bar defendant Donald Koch from working in the municipal advisory and credit-rating sectors.

“The commission cannot apply the Dodd-Frank Act to bar Koch from associating with municipal advisors and rating organizations because such an application is impermissibly retroactive,” the court wrote.

Tuesday’s decision arose out of a case the SEC initiated against Koch in 2011 over alleged misconduct that occurred in 2009.

In its complaint, the SEC accused Koch and his firm Koch Asset Management of “marking the close” - a manipulative tactic involving heavy buying and selling right before the market closes to inflate prices.

An SEC administrative law judge found Koch liable for the violations, and the decision was also upheld in an appeal before the five-member commission.

But when the SEC imposed remedial sanctions on Koch, the agency decided to bar him from not only from the securities industry, but also from the municipal advisory and credit-rating sectors as well - two types of industry bars that were created by the Dodd-Frank law.

The appeals court largely upheld the SEC’s findings against Koch, noting that there was “ample evidence” that Koch manipulated the market and that the SEC applied the correct legal standard in the case.

However, the court disagreed with the agency’s decision to invoke its new powers under the Dodd-Frank law.

Tuesday’s decision immediately sparked reaction by the SEC’s two Republican commissioners, who both have long complained about the agency’s decisions to retroactively apply industry bars to behaviors that predated the Dodd-Frank law.

In a joint statement, SEC Commissioner Mike Piwowar and SEC Commissioner Dan Gallagher said they felt vindicated, and they called on the SEC “to move promptly to vacate and amend the orders for all impermissibly retroactive bars imposed since the enactment of Dodd-Frank.”

An SEC spokeswoman declined to comment on the ruling.

Reporting by Sarah N. Lynch; Editing by Cynthia Osterman

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below