SEC Puts ALJ Cases on Hold Following Supreme Court Ruling

Jun 27, 2018

Kyle DeYoung comments on the SEC's decision to put a hold cases to be heard by its administrative law judges following a Supreme Court ruling on June 21 that required the judges be appointed, not simply hired by commission staff as previously practiced.

Excerpts from "SEC Puts ALJ Cases on Hold Following Supreme Court Ruling," HFM Compliance, June 27, 2018:

The Supreme Court decision could open the door to certain cases heard by ALJs being retried. Kyle DeYoung, a partner at Cadwalader, Wickersham & Taft, said cases likely to be retried will be those where there has been an initial decision by an ALJ and the respondent in those cases has raised the issue of constitutionality of the appointment process as an argument during the litigation process. “The cases will likely have to be retried in front of a different ALJ than the one that originally heard their case.” He added: “I think it’s unlikely that everyone who had a decision go against them will be permitted to have a retrial. I think the most likely outcome is that only litigants who had raised that issue or preserved the issue of unconstitutionality of the ALJ will be entitled to a retrial.”

DeYoung said the lack of a court decision on removing ALJs is “a step in the direction of political influence on the ALJs.” He noted, however, that how far this influence could extend is unclear. “I think that the notion ALJs need to be appointed by the Commission themselves is a step in that direction and perhaps in the future when appointing ALJs there could be a litmus test of whether or not they are likely to agree with a majority of the commissioners at that time. Right now there are still protections against removal – ALJs can only be removed ‘for cause’ – so there isn’t the concern about political influence but if they can be removed by the Commission at will or there is some other reorganization of the process, you raise the spectre of the ALJs being much more influenced by politics.”

DeYoung added: “The removal issue is something the SEC is probably thinking about when they’re deciding how to fix things in the short term. If it decides to make changes to address the removal issue, the SEC has to make sure it doesn’t cause other unintended consequences. If the SEC doesn’t make any additional changes or if the removal issue stays the same, that is something the courts will eventually have to rule on.”

DeYoung said he thinks it’s unlikely that everyone who had a decision go against them will be permitted to have a retrial. “I think the most likely outcome is that only litigants who had raised that issue or preserved the issue of unconstitutionality of the ALJ will be entitled to a retrial.”

DeYoung added: “If you look at the court’s analysis, it is certainly going to apply to other ALJs and other agencies that have ALJs that are appointed in a similar manner to the SEC and perform a similar function. I think these other agencies are looking hard at what they need to do to make sure their ALJs pass constitutional muster.”

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