By availing itself of the increased authority provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the U.S. Securities and Exchange Commission has been bringing more enforcement actions than ever before, and making more use of its in-house adjudication system—the administrative proceeding. With a reported 90 percent success rate in actions litigated in the administrative forum, compared with a noticeably lower 69 percent success rate in actions brought in federal district court over the same period,1 the SEC has come under fire from commentators, lawyers, and judges for depriving respondents of their due process rights. Amid this flurry of criticism, and coming on the heels of several successful constitutional challenges to the administrative system, the SEC has proposed amendments to its Rules of Practice in an apparent effort to provide a more fair process for respondents. These proposals, although a step in the right direction, still do not go far enough to leveling the playing field for respondents.
The Call for Change
The structure of SEC administrative proceedings, and the rules governing the administrative process, create significant advantages for the SEC. Administrative proceedings are conducted pursuant to the SEC’s procedural rules (SEC Rules of Practice), and are brought before administrative law judges (ALJs) hired by the SEC. A respondent who disagrees with the ALJ’s decision must appeal to the SEC itself, and only afterward can appeal the SEC’s decision to a federal court. Unlike a proceeding in district court, administrative proceedings lack several key due process protections, most notably the right to full discovery, the right to a jury trial, and the exclusion of hearsay evidence.2
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