The SEC: Killing Dead Flies With a Sledge Hammer

Section 12(j) of the Securities Exchange Act of 1934 authorizes the Securities and Exchange Commission to conduct a hearing on the record, and thereafter suspend or revoke the registration of any security registered with the commission under the Exchange Act. This order is to be based on a finding that the issuer has failed to comply with the provisions of the Exchange Act and such sanction is necessary or appropriate to protect investors. The section goes on to prohibit broker-dealers from effecting transactions or inducing the purchase or sale of a security where the SEC has revoked or suspended the registration of that security. These proceedings are based upon a failure to file the quarterly and annual reports required under the Exchange Act.¹

In recent years, the SEC has increased the use of these Section 12(j) proceedings. In its fiscal year ending Sept. 30, 2008, the SEC brought 113 such proceedings, constituting 17 percent of all enforcement actions brought that year. In its fiscal year ending Sept. 30, 2009, it brought 141 such proceedings, constituting 14 percent of all enforcement actions. In its fiscal year ending Sept. 30, 2010, it brought 106 such proceedings, constituting some 16 percent of all enforcement actions.² For these three years, these proceedings totaled 360 out of 1,206 enforcement actions, nearly 18 percent of all SEC enforcement actions.