David Zaring is an Associate Professor of Legal Studies and Business Ethics at the Wharton School, University of Pennsylvania. This post is based on an article authored by Professor Zaring.
The Dodd Frank Wall Street Reform Act allowed the Securities & Exchange Commission to bring almost any claim that it can file in federal court to its own Administrative Law Judges. The agency has since taken up this power against a panoply of alleged insider traders and other perpetrators of securities fraud. Many targets of SEC ALJ enforcement actions have sued on equal protection, due process, and separation of powers grounds, seeking to require the agency to sue them in court, if at all.
The SEC has vigorously—and, my article argues, correctly—defended its power to choose where it sues. Agencies have always enjoyed unfettered discretion to choose their enforcement targets and their policy making fora. Formal adjudication under the Administrative Procedure Act (APA), which is the process SEC ALJs offer, has been with us for decades, and has never before been thought to be unconstitutional in any way. It violates no rights, nor offends the separation of powers; if anything scholars have bemoaned the fact that it offers inefficiently large amounts of process to defendants, administered by insulated civil servants who in no way threaten the president’s control over the executive branch. Nonetheless, because defendants, advised by high profile lawyers, have raised appointments clause, due process, equal protection, and right to a jury trial claims against the agency, the article reviews the reasons why these claims will fail, and discusses the timing issues that have led the two appellate courts to address the claims to dismiss them as prematurely brought.
