Pierce v. Securities and Exchange Commission
Case No. 14–1079
We represented Brent Pierce in administrative proceedings seeking potential disgorgement of more than $10M. In 2008, the SEC commenced an administrative proceeding against Pierce seeking disgorgement of $2.1M from Pierce plus interest from 2004. After the evidentiary hearing in February 2009, the Enforcement Division obtained Liechtenstein bank records of Pierce affiliates and submitted the records to the ALJ prior to post-hearing briefing, asking the ALJ to disgorge an additional $7.5 million from Pierce. The ALJ admitted the new evidence over Pierce’s objection, used it to establish registration violations, and disgorged $2.1 million plus interest (about $2.8 million). But the ALJ ruled that the Commission, not she, had the authority to add the $7.5 million disgorgement claim. Neither Pierce nor the Division appealed, so the $2.1 million disgorgement order became final in July 2009. In 2010, the SEC filed a collection proceeding in federal court in San Francisco and commenced a new administrative proceeding. It sought the additional $7.5 million (plus interest from 2004, bringing the total to roughly $11 million) even as it was collecting the “final” disgorgement amount of $2.8 million in early 2011. In the second proceeding, Pierce argued that res judicata and other defenses barred recovery. The second ALJ ruled that res judicata would have applied but that Pierce had fraudulently concealed evidence, and ruled against Pierce. Pierce appealed. The Commission ruled that res judicata did not apply and that fraudulent concealment would defeat res judicata in any event. The DC Circuit Court of Appeals affirmed. It conceded that res judicata fit but ruled that fraudulent concealment exempted Pierce from that defense, in the context of an administrative proceeding. This case is important because it exemplifies the concerns raised by the defense bar about due process for respondents in the SEC’s administrative forum. Here, the SEC escaped reversal of its administrative ruling only because the DC Circuit did not force the SEC to “play by its own rules.” Under those rules, the $7.5M claim was abandoned with the failure to appeal in the first case and extinguished by the final order. While the DC Circuit has historically deferred to the SEC in many respects, mounting problems with fairness in the SEC’s administrative forum are coming to a head. The SEC is now reportedly planning to revamp its rules.