Background
Apex Clearing Corporation, a registered broker-dealer, settled an SEC enforcement action arising from its failure to preserve employees’ business-related communications on personal devices. The August 2024 settlement imposed penalties and remedial undertakings that subjected Apex to heightened and costly FINRA supervision.
In January 2025, the SEC entered less severe settlements with other firms accused of similar recordkeeping violations. Those settlements omitted the undertakings that triggered heightened FINRA supervision. Apex asked the SEC to modify its settlement to match the later terms, arguing that continued enforcement of the original undertakings was inequitable. By a two-to-one vote, the SEC denied Apex’s motion, concluding that later parties’ receipt of better settlement terms did not constitute the compelling or extraordinary circumstances needed to disturb a final settlement.
The Court’s Holding
The Fifth Circuit denied Apex’s petition for review. The court first rejected the SEC’s litigation-stage argument that Apex had waived its right to challenge the settlement’s undertakings because the agency had not presented that waiver rationale in the administrative record. The court nevertheless framed the matter under review as the SEC’s denial of Apex’s modification motion, not the original settlement itself.
Under that framing, the SEC acted reasonably by requiring Apex to demonstrate a significant change in facts or law and by concluding that later, more favorable settlements did not satisfy that standard. Apex had not shown that its undertakings had become unworkable or detrimental to the public interest. The SEC also reasonably distinguished its prior modification decision in Millennium Partners, where enforcement staff did not oppose relief, the obligations were becoming unworkable, and modification would end an otherwise indefinite requirement.
Although the court acknowledged the undisputed disparity between Apex’s settlement and the lighter January 2025 settlements, it held that the SEC was not required to offer identical settlement terms across an enforcement sweep. Because Apex had agreed to its terms and the SEC adequately explained why modification was unwarranted, the denial was not arbitrary, capricious, an abuse of discretion, or otherwise contrary to law.
Key Takeaways
- A later SEC settlement offering better terms to similarly situated firms does not, by itself, justify modifying an earlier final settlement.
- A party seeking modification must identify circumstances sufficiently significant to overcome the strong interest in settlement finality, such as obligations becoming unworkable or detrimental to the public interest.
- A reviewing court cannot uphold agency action based on a waiver theory or other rationale that the agency did not present in the administrative record.
Why It Matters
The decision reinforces the finality of negotiated SEC settlements even when the agency later changes its approach and gives comparable firms materially lighter terms. Regulated entities generally cannot reopen an agreed settlement merely by showing that later settling parties obtained a better deal.
The opinion also preserves an important administrative-law constraint: agencies must defend their decisions using the reasoning reflected in the administrative record. Here, that principle defeated the SEC’s waiver argument but did not alter the outcome because the agency had adequately explained its refusal to modify Apex’s settlement.