PHIL HAMBURGER ON THE S.E.C.’S ADMINISTRATIVE LAW JUDGE SCANDAL:
When prosecuting its cases, the SEC can choose to avoid the courts of law and their due process by bringing its cases before its own in-house administrative law judges, or ALJs. This is bad enough on its own, but there is also reason to believe that the SEC’s indirect method of appointing its ALJs is unconstitutional. The Supreme Court will hear arguments on that question April 23, in the case Lucia v. Securities and Exchange Commission.
The SEC appoints its ALJs through the decision of a subordinate. Some justices may be tempted to uphold this indirect method of appointment on the assumption that, by creating a buffer between the commission and its ALJs, it preserves their independence. But the New Civil Liberties Alliance’s amicus brief filed in Lucia reveals a further twist in the SEC’s appointment process — a wrinkle that results in ALJs who are neither independent nor particularly expert.
Several years ago, commentators noticed that the SEC enjoyed considerably higher success rates when it brought its suits before ALJs rather than federal district court judges. Now it turns out that the impartiality problem is even worse than imagined.
The SEC may choose its ALJs from a list of three top candidates provided by the Office of Personnel Management — which, in theory, leaves the agency little room to select ALJs who would favor it. But the SEC has circumvented this appointment process by taking the majority of its ALJs laterally from the vast pool of existing ALJs at other agencies.
By drawing ALJs from places like the Social Security Administration, the SEC finds ALJs who have no previous expertise in securities law and who have mostly adjudicated the distribution of benefits. They are therefore unaccustomed to protecting defendants in proceedings that can deprive them of their livelihood. For example, Cameron Elliot — the SEC ALJ who presided in Lucia — came from the Social Security Administration. Several years ago, he was reported to have claimed that “he had never ruled against the SEC’s enforcement division,” and that record has not improved much since.
Weird how people trust the government less than they used to.