SEC Decreases Use of Administrative Law Judges

By: Pattie Weir, 3L, Journal Editor

According to an article in The Wall Street Journal, titled SEC Trims Use of In-House Judges, the SEC has been decreasing its use of in-house judges (administrative law judges).  This change comes after the SEC has been facing harsh criticism for using agency administrative law judges to decide contested cases. 

One of the main criticisms was that this practice was giving the SEC a home-court advantage.  In May the Journal did an analysis and found that “the agency won against 90% of defendants in contested cases heard by its in-house judges from October 2010 through March 2015, versus 69% success in cases it took to federal court.”  In response to this criticism, the SEC defended the fairness of using the administrative law judges, stating that this was in accordance with the powers granted to it from Dodd-Frank in 2010.  SEC officials also cite the fact that their judges do rule against them as evidence to refute any claims of bias.  In addition, last month the agency “announced new rules giving defendants in cases sent to SEC judges more of the legal protections of federal court.” 

New analysis revealed that the SEC is sending fewer contested cases to the administrative law judges.  In the last quarter ending in September, the SEC only sent 11% of its contested cases to its administrative law judges.  That is in rather stark contrast to the 40% that it sent in that same quarter last year in 2014.  In the most recent fiscal year, which ended on September 30th, the SEC used its administrative law judges for 28% of its contested cases.  That number is down significantly compared to the 43% of contested cases it sent to its administrative law judges the year before.  The new analysis also revealed that the SEC’s success rate before its own judges for this fiscal year is down to 72%.  According to agency data, the SEC won all six of the federal court trials it brought this fiscal year.  Andrew Calamari, the director of the SEC’s New York regional office, stated that “[w]hatever forum we’re talking about, we win . . . the vast majority of the time.”

The data from the article makes it clear that at least in the last year the SEC has decreased its use of administrative law judges in deciding contested issues.  However, it remains to be seen if this is a trend the SEC intends to follow and continue or rather is it an anomaly.  That question is hard to answer because the reason for this decline is unknown.  It could be a conscious decision that the SEC has made in response to the harsh criticisms it faced or it could be that for the specific cases that occurred this year the SEC thought that the federal court was better suited to handle the issues.  Only time will tell.  Data from the next fiscal years will be key in determining if this trend is here to stay.

Sources:

1. Jean Eaglesham, SEC Trims Use of In-House Judges, Wall St. J., Oct. 11, 2015, http://www.wsj.com/articles/sec-trims-use-of-in-house-judges-1444611604.