Reforming SEC ALJ Proceedings

This Note considers the current constitutional challenges to SEC administrative proceedings and suggests process reforms to enhance fairness for respondents. Challenges have developed since the Dodd-Frank Act expanded the SEC’s ability to use administrative proceedings. Arguments that there is a pre-existing flaw in the method of appointing administrative law judges provide the most potential for success. The Tenth Circuit’s December 2016 decision against the SEC in Bandimere has created a split, diverging from the D.C. Circuit’s analysis of that question in Lucia. Resolution by the Supreme Court may be inevitable. Even if the challengers do ultimately succeed, this will not improve substantially the fairness or efficiency of the process. The SEC’s recent rule changes consist of only limited reform of its rules of practice governing administrative proceedings. This Note suggests addressing fairness and efficiency issues directly, by reforming the SEC’s criteria for selecting cases to pursue in front of its administrative law judges, introducing a right of removal where the SEC alleges fraud, and establishing an affirmative obligation to ensure that the SEC identifies material and potentially undermining evidence to respondents.