You Can Fight the SEC

On April 14, the Securities & Exchange Commission agreed to pay $102,969 in attorney's fees incurred by one Charles D. Elliot III in fighting an SEC lawsuit–SEC v. Elliott, 83 SEC Docket 2056. All claims were dismissed in that case before ALJ Robert G. Mahony last August; the order was finalized last September, after which Elliott filed an application under the Equal Access to Justice Act (EAJA) seeking to have the government pay his attorneys' fees and expenses.

The attorney representing Elliott in the case, Michael Quinn of Kirkpatrick & Lockhart Nicholson Graham in Los Angeles, says the case hinged on the judge's determination that Elliott had not violated a 1999 suspension order of the SEC. One lesson to be learned from the case, suggests Quinn, is that you can fight city hall. "So often people find themselves in an SEC enforcement investigation, and they decide that it's not worth it to fight the government," and instead seek a settlement. That's what happened in the Elliott case, says Quinn, but because the SEC was so "unreasonable" in those discussions, Elliott decided to fight. When in his ruling dismissing the case Judge Mahony said the action against Elliott "raises a question of fundamental fairness," says Quinn, Elliott sought the EAJA attorneys' fees ruling. "It sends a message that if you haven't been doing anything wrong, you can fight the government," Quinn says.

There's another lesson to be learned from the case, Quinn claims. In his practice, Quinn has dealt with most of the regional offices of the SEC, and he believes that many of the staff attorneys in the regional offices who are conducting investigations are "not showing good restraint" when the early evidence from those investigations does not warrant moving ahead. "These days, I am definitely seeing some overreaching by the staff," Quinn says. Increasingly, "the more senior members of the regional offices have a hard time stopping an investigation when it's not going anywhere." Quinn doesn't see any political machinations behind these investigations, but rather an "economic" one. "The SEC's budget has increased, so it has to spend that money, or they're not going to get it next year. So they're pushing the investigations." The SEC's budget has increased in the last few years. In the 2006 budget, however, the Commission is seeking a total of only $888 million, including $25 million in funds it did not spend in FY 2005, when the SEC had total funding of $911 million, as SEC Chairman William Donaldson testified to before Congress on March 11.–James J. Green