SEC Pulls Back on the Use of In-House Judges

A Wall Street Journal report says that the Securities and Exchange Commission has cut back substantially on the number of cases it sends to its in-house judges, going from 48% of cases filed as administrative proceedings in the first three months of 2015 to 11% for the three-month period from July to September, 2015.

The SEC has five administrative law judges to hear cases the agency decides not to try in federal court. Since the passage of Dodd-Frank in 2010, the SEC has tried a majority of its cases before its in-house judges, electing to file the suits as administrative proceedings rather than federal court cases.

A May 2015 WSJ report found that the agency won 90% of its cases tried before in-house judges from October 2010 to March 2015 versus 69% when it tried cases in federal court. Last year, SEC officials said that they would use the authority granted by Dodd-Frank to expand the use of in-houses judges for a broader array of cases, including insider trading cases.

However, earlier this year, a federal judge in Atlanta temporarily halted the SEC’s insider trading case against real estate developer Charles Hill, finding that the use of an in-house judge to preside over the administrative proceeding is “likely unconstitutional.” That case is one of four stopped by federal judges.

Hill’s case was set to be tried before SEC administrative law judge James Grimes, who was hired by the agency through its office of in-house judges rather than by appointment approved by the five commissioners.

U.S. District Judge Leigh Martin May ruled that Hill had a “substantial likelihood of success” arguing that the SEC appointment of Grimes violated the Appointments Clause in Article II of the Constitution. She found that the Constitution requires the appointment of an “officer” such as an administrative law judge be made by agency leadership, the president or the courts, not mere junior officials.

Last month, the SEC announced new rules that provide defendants with cases pending before SEC judges more legal protections similar to federal court. SEC officials deny that their judges are biased towards the agency, noting that since May, four of 12 defendants have been found not guilty by SEC judges. The Cogdell Law Firm is a full service criminal litigation and appellate law firm. We provide client-focused representation at all stages of the process, whether our clients are seeking to avoid charges, have been charged, or are seeking reversal of a conviction on appeal. When results matter most, contact Dan Cogdell at (713) 426-2244 or