Monday, November 10, 2014

Judge Rakoff Questions the SEC's Overuse of Administrative Proceeding

Judge Jed Rakoff, of the Southern District of New York, is a frequent critic of the Securities and Exchange Commission. Last week he gave the keynote address at the Practicing Law Institute's Securities Regulation Conference.

Judge Rakoff shared his concerns about the increased use of administrative proceedings by the SEC, concerns that myself, and other practicing attorneys have voiced in recent months. See, SEC's Use of Administrative Hearings Under Fire,  The SEC's Use of the Rocket Docket is Challenged and At the SEC, a question of Home Court Edge.

The address, titled "Is the SEC Becoming a Law Unto Itself" starts with an explanation of how we got to this place, where an administrative agency can sue anyone, internally, before its own judges, under its own rules, without a jury, or a constitutionally appointed judge. According to Judge Rakoff, this change has come about almost entirely at the request of the S.E.C., usually by tacking the provisions authorizing such expansion onto one or another statute enacted in the wake of a financial scandal.

There are serious, and undisputed problems with the SEC administrative proceedings. First, the SEC appoints, chooses, and pays the administrative law judge who hears and decides the case. Now, there is no doubt that these officers are diligent, honest and hard working. That is not the point. The point is that for all of their honesty and hard work, they have ruled nearly 100% of the time in favor of the SEC. That is a simple fact.

Judge Rakoff makes an excellent point, that is a bit less personal for our readers, but what should be of interest to everyone. The use of these administrative hearings is hindering the development of the securities laws. This is the same problem that has been created by mandatory arbitration - there are less cases in court, less judicial decisions by judges who are appointed pursuant to our constitutional mandate, in a constitutionally acceptable, and often very public manner.

What this means is that whatever law is developed is going to be developed by SEC administrative judges, not federal court judges who are independent, and whose decisions are easily reviewed by the courts.

At Judge Rakoff points out - whatever one might say about the SEC's quasi-judicial functions, the continued use of administrative judges instead of the federal courts is not going to lead to balanced, careful and impartial interpretations, as would result of those cases were brought in federal court.
Read my article, the Rocket Docket article and Judge Rakoff's speech for the details of all that is wrong with this system.

Judge Rakoff's speech is available at https://securitiesdiary.files.wordpress.com/2014/11/rakoff-pli-speech.pdf

--- The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.
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