SEC denies motions from firms seeking more lenient settlements

The Securities and Exchange Commission issued an order Monday denying motions from Hilltop Securities and other firms seeking to modify orders from settled administrative proceedings relating to off-channel communications.

The Commission found that the dealers seeking to have previously agreed-upon disciplinary action reduced because later settlements for similar conduct were more lenient did not warrant modifying the existing settlement terms.

"Respondents claim that although the later settlements involved similarly situated respondents, the terms of those orders were better than their own," the SEC's order said. "Even if that were so, however, it would not be a basis for modifying respondents' settled orders."

In briefs filed in January in support of their motions, Hilltop and some other firms including Piper Sandler & Co., Oppenheimer & Co. and Robert W. Baird & Co. alleged that after what had been the SEC's uniform approach to off-channel communication enforcement for more than two years, orders instituted in January marked a shift.

The January orders "took a materially different approach to materially similar violations of the same provisions of the federal securities laws by similarly situated firms by eliminating certain costly and burdensome undertakings and compliance requirements," Hilltop said in its brief filed January 30.

According to the SEC's order Monday, between September 2023 and September 2024, the commission issued 16 separate orders "instituting administrative and cease-and-desist proceedings, making findings, and imposing remedial sanctions and a cease-and-desist order" against firms identified in an appendix as respondents.

The SEC issued those orders after accepting the respondents' signed offers of settlement, in which they admitted to certain violations involving their employees' communications on personal devices and "agreed to comply with undertakings designed to remediate their violations," the order said.

The respondents were now looking to modify their settled orders, contending that the SEC "should 'equalize' certain undertakings contained in respondents' agreements with those contained in more recent commission settlements," the SEC's order denying the motions said.

The SEC also said it wasn't persuaded by respondents' claims that they were being effectively penalized for settling earlier than other respondents.

The choice to settle early entails "both an inherent risk and potential benefit: Though the settling party must act with relatively less information than those that settle later, it avoids the time and expense of further negotiation and litigation," the SEC said.

"Settlor's remorse?and a desire to revisit that risk calculus?does not justify upsetting a final, agreed-upon settled order," the order said.

But the Commission was not unanimous, with Commissioner Hester Peirce arguing that the firms' arguments had merit.

"Under the unique circumstances here, the Commission should take the unusual but warranted step of modifying the settled orders," Commissioner Peirce said. "The commission refuses to do so. Accordingly, I dissent."

In her dissent, Peirce said that even prior to the January settlements cited by respondents, the SEC took different approaches to undertakings in settlements with firms swept up in the off-channel communications sweep.

"For example, all the settlements with municipal advisors ordered the respondents to comply with certain undertakings, but those undertakings appear far less costly and lengthy than those imposed on respondents," Peirce said.

When the SEC undertakes enforcement sweeps that ensnare large numbers of firms spanning different parts of its regulatory spectrum, "it should endeavor to ensure both that the remedies it selects are commensurate to the conduct and that it imposes those remedies in a fair and even-handed manner across firms," Peirce said.

When the SEC settles on a remedial plan that results in substantially greater costs to one category of firms, "it should do so for well-explained and transparent reasons," she said.

"This need for clear and transparent explanation is only heightened when the commission chooses to change course in its application of the remedial scheme," Peirce said. "Because that explanation is lacking here, I would grant the respondents' motions and modify the settled orders to make the undertakings voluntary in all of them."