Wednesday, August 12, 2015

Court Stops SEC From Pursuing Hearing Before its Own ALJ

We have been beating this drum for a while now. The SEC's abuse of its administrative law procedures has become legend, and a success rate of 90-100% demonstrates the unfairness of the process. After all, it is going to be tough to lose a trial if you get to write the complaint, pay the prosecutor, try it before a judge that you appointed and pay, and then you get to decide the appeal. Hardly the model of fairness.

There are other technical objections to the process, including the fact that the SEC's appointment process for these judges is unconstitutional.  In June we reported on a federal court decision which found that the process was "likely unconstitional." Now a second federal judge had ruled that the SEC's method for appointing in-house judges was probably illegal and today entered a preliminary injunction against the SEC, preventing it from moving forward with the administrative proceeding.

The original decision by U.S. District Judge Richard Berman in Manhattan rejected the agency’s method of selecting administrative law judges to whom it directs hundreds of cases a year.  In the decision on August 3, 2015 the court reserved judgment on the request for an injunction for 7 days to allow the SEC time to decide if it was going to cure the violation of the constitution.

The SEC then advised the court that there is another case before the Commission, where the SEC is considering whether its process is unconstitutional, but that no decision has been made. The SEC Staff then took the curious position that it was going to move forward with the case, despite the court's decision, since the Commission itself had not made a decision.

In response, today the court entered a preliminary injunction preventing the SEC from pursuing the case. The preliminary injunction decision is also available at our site.

While this is only addresses one of many problems with the mis-use of the ALJs, it is one that the Commission can probably fix with relative ease - either reappoint their ALJs in accordance with the constitution, or hold the trials themselves.

My guess? They do neither and continue to abuse the process while they pursue appeals.

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. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email to

Related Documents and Commentary:

Duka v SEC Decision and Order Re Preliminary Injunction

Duka vs. SEC Preliminary Injunction

Court Rules SEC In-House Judges "Likely Unconstitutional"

SEC Sued For Unconstitutional Use of Its Own Judges

SEC's Use of Administrative Hearings Under Fire

Former SEC ALJ Claims Bias in Administrative Proceedings

Judge Rakoff Questions the SEC's Overuse of Administrative Proceeding

How the SEC Avoids Judicial Oversight and the Constitution