• SEC Pads its Enforcement Statistics with "12(j)" Cases
  • January 9, 2009
  • Law Firm: Holland & Hart LLP - Denver Office
  • Reeling from criticism of its inability to police Wall Street’s role in the economic meltdown, the SEC has resorted to padding its enforcement statistics.  On October 22, 2008, the SEC issued a press release touting the 671 enforcement matters started in the year ended September 30, 2008 as "[t]he second-highest number of actions ever.”[1] According to a recent Forbes article,[2] however, at least 56 of these cases were administrative proceedings to revoke the registration of the stock of small publicly traded companies pursuant to Section 12(j) of the Securities Exchange Act of 1934.  The article states that all of these cases were instituted during the last two months of the agency’s fiscal year, as part of an apparent ploy to “make its numbers.”  A review of the SEC’s website reveals that up to a dozen of these cases were announced at the same time.  In contrast, during the same two-month period in 2007 the SEC launched only eleven such actions.   These cases were counted the same as important financial fraud cases involving large public companies. 

    Section 12(j) proceedings require virtually no investigation because the only issue is whether the subject companies’ SEC filings are delinquent.  Further, such  proceedings  hardly ever are contested because the companies’ dire financial straits led to their inability to satisfy  their filing obligations.  Companies with no money cannot afford to hire lawyers to defend themselves.  This is part of the SEC’s predatory pattern of suing the weak and the crippled while ignoring larger and more difficult potential foes.  The agency seems to be saying to itself, why bother suing Lehman Brothers if we can bring ten times as many 12(j) cases for 1% of the effort?  The SEC’s misleading disclosure would be actionable if it were made by a public company.  It is no wonder that investors and Congress have lost confidence in the SEC. 


    [1] http://www.sec.gov/news/press/2008/2008-254.htm

    [2] http://www.forbes.com/business/forbes/2008/1208/034.html