administrative law judges

Not So Fast: The Tenth Circuit Creates a Split by Denying the Constitutionality of the SEC’s Administrative Law Judges

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Just before the clock struck 2017, the United States Court of Appeals for the Tenth Circuit weighed in on the constitutionality of the United States Securities and Exchange Commission’s (“SEC” or “Commission”) administrative law judges. In Bandimere v. SEC, the Tenth Circuit overturned Commission sanctions against Mr. Bandimere because the SEC administrative law judge (“ALJ”) presiding over Mr. Bandimere’s case was an inferior officer who should have been constitutionally appointed to the position in violation of the Appointments Clause of the United States Constitution.

The SEC originally brought an administrative action against Mr. Bandimere in 2012, alleging he violated various securities laws. An SEC ALJ presided over the fast paced, “trial-like” hearing, and the ALJ ultimately found Mr. Bandimere liable, barred him from the securities industry, imposed civil penalties and ordered disgorgement.  The SEC reviewed that decision and reached the same result.  Mr. Bandimere, therefore, appealed the SEC’s decision to the Tenth Circuit. READ MORE →

Will It Be Enough?: SEC Amends Rules to Look More Like Federal Court

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In a move that will make Securities and Exchange Commission administrative proceedings look more like civil litigation in federal court, on July 13, 2016, the SEC announced that it had adopted amendments to its rules of practice.  These rules appear similar to those the Commission proposed last September.  For critics of the amendments, they may not go far enough, but the expanded discovery and clarifications regarding dispositive motion practice may address some of the issues previously raised regarding the Commission’s perceived home-court advantage.

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Second Circuit Halts Constitutional Challenge to SEC Administrative Proceedings

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On June 1, the Second Circuit in Tilton et al. v. SEC, No. 15-2103 (2d. Cir. Jun. 1, 2016), echoed recent Seventh and D.C. Circuit decisions (respectively, Bebo v. SEC, No. 15-1511 (7th Cir. Aug. 24, 2015), cert. denied, 136 S. Ct. 1500 (Mar. 28, 2016), and Jarkesy v. SEC, No. 14-5196 (D.C. Cir. Sept. 29, 2015)) in finding that constitutional or other challenges to SEC proceedings cannot go forward in court until the administrative proceeding ends; review can only be sought as an appeal from a final decision by the Commission.  The Second Circuit’s decision in Tilton creates unanimity among the circuit courts that have addressed the issue to date, although, as we previously reported, the Eleventh Circuit is likely to rule on the issue sometime this year in Hill v. SEC, No. 15-12831. Unless the Eleventh Circuit bucks this trend and creates a circuit split, it now looks unlikely that the Supreme Court will weigh in on this issue (particularly because the Supreme Court previously denied a petition to review the Seventh Circuit’s decision in Bebo).

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Full Court Pressure: SEC OIG Finds No Undue Influence By ALJs in Favor of Government

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The Securities and Exchange Commission’s Office of the Inspector General (“OIG”) recently released findings from its extensive investigation into allegations of potential bias against respondents in SEC administrative proceedings.  The OIG report comes at a time when the fairness of the SEC’s in-house administrative forum is under scrutiny from both inside and outside of the agency.

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Mark Cuban Challenges the Referee: the Constitutionality of SEC In-House Courts

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in-house courts

After the repeated challenges to the SEC’s in-house courts as previously reported, Mark Cuban joined the debate by filing an amicus curiae brief in support of petitioners Raymond J. Lucia Companies, Inc. and Raymond J. Lucia (collectively “Lucia”) in Lucia v. SEC.  Cuban, describing himself as a “first-hand witness to and victim of SEC overreach” in a 2013 insider trading case brought against him in an SEC court, argued that the D.C. Circuit should grant the petitioners’ appeal because SEC in-house judges are unconstitutionally appointed.

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The SEC Criticizes One of Its Own

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Even with the SEC’s home-court advantage in bringing enforcement actions in its administrative court rather than in federal court, the SEC will still criticize its own administrative law judges (“ALJ”) when an ALJ’s decision falls short of established legal standards.  On April 23, 2015, the SEC found that an ALJ’s decision to bar Gary L. McDuff from associating with a broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent or nationally recognized statistical rating organization was insufficient because it lacked enough evidence to establish a statutory requirement to support a sanctions analysis.  The SEC then remanded the matter to the same ALJ – no doubt in an effort to encourage him to revise his initial opinion.

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