SEC Roundup 98: How the SEC Unlawfully Delayed a Case for Ten Years

Yeah.

Thanks, Tom.

And so this caught our eye because it is pending in the DC Circuit Court of Appeals, and the-- Bob's client is an entity called Lex Securities.

And to understand the case that... and Bob will obviously give us more detail, but to understand the case, we first need to understand the way that Wall Street is policed.

So the SEC doesn't just regulate markets directly, as, as the audience will likely know.

It also oversees what are known as self-regulatory organizations, or SROs, like the New York Stock Exchange and FINRA.

Those are two types of SROs which handle, in some respects, the day-to-day discipline of their member broker-dealers or other types of firms.

So if an SRO, like the New York Stock Exchange or FINRA, sanctions a firm, that firm can appeal the decision to the SEC, which serves as an administrative review body before the case ever reaches a federal court.

So in the case we're gonna talk about today, Lex Securities versus the SEC, that system broke down completely, or I guess another take on it would be the system worked exactly as it's designed, [chuckles] which is in a very faulty way.

So back in 2012, and, and the dates and chronology are important here 'cause it makes the-- one of the points that Lex Securities and Bob are making.

So in 2012, the New York Stock Exchange brought a disciplinary charges against Lex Securities, which is a clearing firm alleging trading violations and supervisory failures that occurred between, now get this, the years 2007 and 2009.

So we're talking about activities that are by now ancient history.

Lex fought back, but in 2015, the New York Stock Exchange found them liable and imposed quite a significant f- number of dollars in fines.

So Lex immediately exercised its right to appeal to the SEC, but instead of resolving the case b- within its own sort of timeframe, the SEC held onto that appeal for over nine years, uh, finally issuing a decision in 2025.

So imagine that, almost a decade waiting for the SEC t- to exercise its supervisory responsibilities over the New York Stock Exchange.

So Bob is representing Lex before the DC Circuit Appeals, and he's gonna talk about that case.

The case raises massive constitutional issues, and notably whether the SEC's decade-long administrative delay in the case violates the firm's Fifth Amendment due process rights, and whether it's fundamentally unfair for an SRO like the New York Stock Exchange to block a firm from presenting expert testimony on industry customs.

And it's a vital look for us and our audience at the real-world dangers of leaving firms trapped in regulatory limbo.

So with that overview, Bob, maybe you can talk a little bit about the case, and maybe we can start out by discussing the issue of how delay can sort of be weaponized in this administrative bubble that the stock exchange works in.