The WSJ today reports that:
The Securities and Exchange Commission is increasingly steering cases to hearings in front of the agency’s appointed administrative judges, who found in its favor in every verdict for the 12 months through September, rather than taking them to federal court.
The winning streak comes amid a marked shift at the agency toward trying cases that are more complex before its administrative law judges. Historically, the SEC had more often turned to these judges for relatively straightforward legal actions, such as barring stockbrokers who had been convicted of criminal fraud. Thanks in part to enhanced powers granted in the 2010 Dodd-Frank financial-reform bill, the SEC lately has been using the administrative judges for complicated cases, including several involving insider trading.
“It’s fair to say it’s the new normal,” Kara Brockmeyer, head of the SEC’s anti-foreign-corruption enforcement unit, told a legal conference in Washington last week. “Just like the rest of the enforcement division, we’re moving towards using administrative proceedings more frequently.”
I see this as a serious problem. Set aside the whole debate over the constitutionality (and advisability) of the independent agencies acting as a fourth branch of government just to focus on the role of ALJs.
There is a serious question of whether the SEC's ALJs are biased in favor of the agency, as suggested by the data the Journal reports:
The agency’s win rate in recent years is considerably higher in front of its administrative law judges than it is in jury trials. In the 12 months through September, the SEC won all six contested administrative hearings where verdicts were issued, but only 61%—11 out of 18—federal-court trials, according to previously unpublished figures.
There has been a similar winning rate in previous years. The agency won nine of 10 contested administrative proceedings in the 12-month period through September 2013 and seven out of seven in the 12 months through September 2012, according to SEC data. The SEC won 75% and 67%, respectively, of its trials in federal court in those years.
Concerns about the impartiality of ALJs and the fairness of the procedures they apply are not new, of course. Twenty five years ago, for example, Karen Lewis explained that:
Although judges must abide by standards of ethical conduct proscribed by the Code of Judicial Conduct (CJC), no such uniform restraint exists for administrative law judges (ALJ's). ALJ's adjudicate significant controversies between administrative agencies and the public; these proceedings resemble typical judicial court actions. … ALJ's are recognized as being functionally comparable to trial judges, and ALJ's decisions have considerable impact upon the lives of most Americans. Their powers, duties, and status have been the subject of debate on several occasions by state and federal courts. Nevertheless, due to their status as agency employees under the executive branch of government and their lack of complete independence, ALJ's are not held to the same ethical code as trial judges.
The employer-employee relationship between agencies and ALJ's gives rise to a public perception that ALJ's are not unbiased or impartial judges.
Karen S. Lewis, Administrative Law Judges and the Code of Judicial Conduct: A Need for Regulated Ethics, 94 Dick. L. Rev. 929, 929-31 (1990).
The problem persists, as Jonathan Turley observed just last year:
Under Article III of the Constitution, citizens facing charges and fines are entitled to due process in our court system. As the number of federal regulations increased, however, Congress decided to relieve the judiciary of most regulatory cases and create administrative courts tied to individual agencies. The result is that a citizen is 10 times more likely to be tried by an agency than by an actual court. In a given year, federal judges conduct roughly 95,000 adjudicatory proceedings, including trials, while federal agencies complete more than 939,000.
These agency proceedings are often mockeries of due process, with one-sided presumptions and procedural rules favoring the agency. And agencies increasingly seem to chafe at being denied their judicial authority. Just ask John E. Brennan. Brennan, a 50-year-old technology consultant, was charged with disorderly conduct and indecent exposure when he stripped at Portland International Airport last year in protest of invasive security measures by the Transportation Security Administration. He was cleared by a trial judge, who ruled that his stripping was a form of free speech. The TSA was undeterred. After the ruling, it pulled Brennan into its own agency courts under administrative charges.
Congress has never seriosuly reconsidered the desirability of this appalling state of affairs, nor has the Supreme Court ever taken seriously the many constitutional issues raised by the emergence of the SEC and its ilk as a fourth branch of government. It is time they did so.
