A provision deep within the Dodd-Frank Reform Act apparently bestows the SEC with a potential new "weapon (of mass destruction)" that could significantly increase its force and reach, Reuters reports.  The Agency has been empowered to bring many more cases for monetary penalties in administrative courts, where the rules are more favorable to the government than in federal court.

Several constitutional and other due-process protections currently available to defendants in federal court - from the right to demand a jury trial to broad discovery rights - don't exist in administrative courts, which are part of the agency itself.  And, until now, if the SEC wanted to sue for monetary penalties and take advantage of the extra clout it had in an administrative law forum, it could only go after a limited class of players - those it directly regulated, like registered B/D's and IA's.

     Under Dodd-Frank.   The SEC has the authority to go to administrative law judges to seek financial penalties from anyone whose activities in any way involve securities - be it hedge fund managers, bank CFO's or even day-trading retirees.  In the past, the SECwas limited to asking for a “cease-and-desist” order, often after the alleged damage had already been done. 

To say this has been on the SEC’s wish list for years would be an understatement.  In 2008, a bill granting the Agency authority to try more cases in administrative law courts passed the House, but died in the Senate.  This go-around, with the financial crisis and a growing consensus that regulators - particularly the SEC - needed broader enforcement powers, the Commission’s proposal easily slipped through.

“Strengthening enforcement by the Commission,” was added to the bill by Rep. Barney Frank (D-MA) during conference negotiations with the Senate in June.  A review of the Congressional Record by Reuters Legal found that the provision, Sec. 929Pa, was not publicly discussed in either chamber.   [NYT Dealbook, 10/28]