On Wednesday, former SEC Chairman Christopher Cox offered his own interesting perspective on the SEC's use of administrative proceedings. In his remarks at Securities Enforcement Forum West 2015 entitled, "The Growing Use of SEC Administrative Proceedings: An Historical Perspective from Congress and the Agency," Chairman Cox pointed out that APs have now developed to the point that they often take the place of trials -- despite bearing little resemblance to civil courts and their accustomed rules of civil procedure. This has occurred, Chairman Cox stated, through a combination of federal agencies using their rulemaking powers to maximum effect while Congress has remained largely absent from the discussion.
Chairman Cox, who is now a partner at law firm Morgan Lewis & Bockius, stated that even when Congress did take action on APs in the Dodd-Frank Act, there was still "little in the way of policy development through educational hearings, or considered congressional analysis of how the Article III courts should interact with the quasijudicial functions of the so-called fourth branch." In 2010, Congress added Section 929P(a) of Dodd-Frank that expanded the SEC’s authority to impose monetary penalties in an administrative proceeding. Chairman Cox observed that
This particular provision of Dodd-Frank was not even debated in either the House or the Senate consideration of the bill. It was simply the rote enactment of one of several items on the SEC's legislative wish list. There is no evidence that this was part of a carefully considered congressional architecture thoughtfully allocating responsibility between agencies and the courts. There is an institutional reason for this. In both the House and the Senate, jurisdiction over the U.S. civil justice system rests with the Judiciary Committees. Authority over the SEC, on the other hand, rests with the Banking and Financial Services Committees. If Congress were actually to have a plan to transfer responsibility from Article III courts to administrative agencies, the Judiciary Committees would have a lead role. But as we well know, the repeated statutory expansions of the SEC's power to use administrative proceedings have not been the product of those committees.
Rather, Chairman Cox noted, Section 929P(a)'s historic expansion of the SEC's AP authority was largely the work of the Banking and Financial Services Committees.
Chairman Cox also addressed the argument raised by defendants in APs that the SEC's ALJs lack independence. He stated that, in fact, the ALJs "unfailingly strive to be independent" and "the process by which they are hired is meant to insulate the Chairman, Commissioners, and agency management from direct involvement." The real issue, Chairman Cox said, is the perception of a lack of independence, given that "the ALJs are employed by the SEC, draw their paychecks from the SEC, work at SEC Headquarters, and have friends among the enforcement staff."
Chairman Cox suggested that one way to resolve the perceived issue of fairness in APs would be to let any party who is not a regulated person or entity to remove the action to federal court. Some litigants might well prefer the speed and lower costs of an AP, but those who did not would have a federal court alternative.
The full text of Chairman Cox's full remarks, which also analyzed the Division of Enforcement's newly-released guidance on its "Approach to Forum Selection in Contested Actions," is available here.