{ "id": "R44280", "type": "CRS Report", "typeId": "REPORTS", "number": "R44280", "active": false, "source": "EveryCRSReport.com", "versions": [ { "source": "EveryCRSReport.com", "id": 452070, "date": "2016-04-25", "retrieved": "2017-02-03T19:27:46.315299", "title": "Securities and Exchange Commission\u2019s Administrative Forum: Background and Selected Legal Challenges", "summary": "The Securities and Exchange Commission\u2019s (SEC\u2019s) increased use of its in-house administrative forum to resolve charges against persons alleged to have violated federal securities laws has generated several court decisions, as well as congressional and media attention. Section 929P(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which gave the SEC the authority to impose civil money penalties, as well as cease-and-desist orders, on almost any person, is often stated as the reason that the SEC has increased its use of the administrative forum, instead of taking alleged wrongdoers to court.\nPlaintiffs in several cases are challenging the SEC\u2019s administrative forum as violating their due process and equal protection rights and as violating the Constitution\u2019s Appointments Clause in the way that the SEC chooses its administrative law judges (ALJs). The SEC has stated that it intends to use the administrative forum aggressively to charge alleged securities wrongdoers and to appeal opinions that strike down the agency\u2019s use of the administrative forum.\nIn three decisions, Jarkesy v. SEC, Wing F. Chau v. SEC, and Bebo v. SEC, federal district courts have held that the plaintiffs had to exhaust their administrative remedies (i.e., reach a final administrative decision within the SEC) before they could bring their constitutional challenges of due process and equal protection violations to a federal court of appeals. Federal courts of appeals have affirmed the district court decisions in two of these cases\u2014Jarkesy and Bebo. The decisions did not address the constitutional challenges but, instead, required that the plaintiffs abide by the statutory procedural scheme for agency proceedings before bringing any court challenges. The Supreme Court denied certiorari in Bebo\u2019s challenge to the constitutionality of the SEC\u2019s in-house administrative forum.\nIn contrast to the decisions dealing with due process and equal protection claims, two federal district court decisions challenging the constitutionality of the SEC ALJ selection process, Hill v. SEC and Duka v. SEC, held that the plaintiffs could proceed in federal district court with their constitutional challenges because of the likelihood of their success. However, another decision on a challenge to the constitutionality of the SEC ALJ selection process, Tilton v. SEC, appeared to criticize Hill and held that the plaintiffs could not go to court until the SEC reached finality in the administrative proceeding.\nA definitive court decision (e.g., a U.S. Supreme Court decision) on the constitutionality of plaintiffs\u2019 due process and equal protection claims and/or on the constitutionality of the appointment and tenure protections of SEC ALJs may be necessary to resolve these issues. It is possible that such a decision could have an impact on the administrative forums or the ALJs of agencies in addition to the SEC.\nThis report will be updated as events warrant.", "type": "CRS Report", "typeId": "REPORTS", "active": false, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R44280", "sha1": "27c08b0677b46110b23b01b7d0ebc93e56ed4556", "filename": "files/20160425_R44280_27c08b0677b46110b23b01b7d0ebc93e56ed4556.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R44280", "sha1": "5e6c94edcf9aab589b35978cc784d2533b8bddec", "filename": "files/20160425_R44280_5e6c94edcf9aab589b35978cc784d2533b8bddec.pdf", "images": null } ], "topics": [] }, { "source": "EveryCRSReport.com", "id": 451338, "date": "2016-03-31", "retrieved": "2016-04-06T16:49:05.543066", "title": "Securities and Exchange Commission\u2019s Administrative Forum: Background and Selected Legal Challenges", "summary": "The Securities and Exchange Commission\u2019s (SEC\u2019s) increased use of its in-house administrative forum to resolve charges against persons alleged to have violated federal securities laws has generated several court decisions, as well as congressional and media attention. Section 929P(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which gave the SEC the authority to impose civil money penalties, as well as cease-and-desist orders, on almost any person, is often stated as the reason that the SEC has increased its use of the administrative forum, instead of taking alleged wrongdoers to court.\nPlaintiffs in several cases are challenging the SEC\u2019s administrative forum as violating their due process and equal protection rights and as violating the Constitution\u2019s Appointments Clause in the way that the SEC chooses its administrative law judges (ALJs). The SEC has stated that it intends to use the administrative forum aggressively to charge alleged securities wrongdoers and to appeal opinions that strike down the agency\u2019s use of the administrative forum.\nIn three decisions, Jarkesy v. SEC, Wing F. Chau v. SEC, and Bebo v. SEC, federal district courts have held that the plaintiffs had to exhaust their administrative remedies (i.e., reach a final administrative decision within the SEC) before they could bring their constitutional challenges of due process and equal protection violations to a federal court of appeals. Federal courts of appeals have affirmed the district court decisions in two of these cases\u2014Jarkesy and Bebo. The decisions did not address the constitutional challenges but, instead, required that the plaintiffs abide by the statutory procedural scheme for agency proceedings before bringing any court challenges. The Supreme Court denied certiorari in Bebo\u2019s challenge to the constitutionality of the SEC\u2019s in-house administrative forum.\nIn contrast to the decisions dealing with due process and equal protection claims, two federal district court decisions challenging the constitutionality of the SEC ALJ selection process, Hill v. SEC and Duka v. SEC, held that the plaintiffs could proceed in federal district court with their constitutional challenges because of the likelihood of their success. However, another decision on a challenge to the constitutionality of the SEC ALJ selection process, Tilton v. SEC, appeared to criticize Hill and held that the plaintiffs could not go to court until the SEC reached finality in the administrative proceeding.\nA definitive court decision (e.g., a U.S. Supreme Court decision) on the constitutionality of plaintiffs\u2019 due process and equal protection claims and/or on the constitutionality of the appointment and tenure protections of SEC ALJs may be necessary to resolve these issues. It is possible that such a decision could have an impact on the administrative forums or the ALJs of agencies in addition to the SEC.\nThis report will be updated as events warrant.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R44280", "sha1": "35cbaad695359d3c87166dd8d0c0810b9b96fa80", "filename": "files/20160331_R44280_35cbaad695359d3c87166dd8d0c0810b9b96fa80.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R44280", "sha1": "b779d38f481b0e42436ea6e111b32e5472904ef1", "filename": "files/20160331_R44280_b779d38f481b0e42436ea6e111b32e5472904ef1.pdf", "images": null } ], "topics": [] } ], "topics": [ "Constitutional Questions" ] }