In the wake of the financial crisis, the federal government has increasingly looked for friendlier forums to litigate its anti-fraud agenda. Some of these—like the U.S. Department of Justice’s use of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) to bring civil suits for essentially criminal violations—are relatively novel. Others—such as the use of administrative courts by the Securities and Exchange Commission—have been around for a long time, but appear to be getting a second look, with both the SEC and the Commodity Futures Trading Commission (CFTC) announcing that they will bring a greater share of their enforcement actions administratively. In response, judges and litigants have increasingly questioned the legitimacy of these forums, despite their longstanding existence, as reflected in U.S. District Judge Jed Rakoff’s comment that: “One might wonder: from where does the constitutional warrant for such unchecked and unbalanced administrative power derive?”1
In October 2014, two lawsuits were filed seeking to explore that very question by asserting constitutional challenges to the SEC’s use of administrative courts. In both cases—Stillwell v. SEC and Peixoto v. SEC—the plaintiffs complain at length about the advantages the SEC enjoys in the administrative process and imply that their particular case involves an example of the SEC overreaching. But their legal arguments focus on the extraordinary authority and discretion that SEC administrative law judges (SEC ALJs) enjoy in the administrative process.
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