An Empirical Study of the Record of the SEC’s ALJs Shows That They Are Unbiased and Accountable, by David Zaring

by Guest Blogger — Friday, Apr. 6, 2018

Lucia v. SEC is technically about the Appointments Clause, but really it is about unfairness.  Can defendants get a fair shake in ALJ proceedings?  If they can’t, there may be a reason for the Supreme Court to do something about ALJs.  But if they can, then twisting and turning doctrine to undo this pillar of the administrative state is entirely unnecessary.

I read five years worth of SEC ALJ opinions in an effort to understand how the adjudicators treat defendants.  I wrote an article about the results, and filed a brief in Lucia v. SEC reporting on my findings.  My quantitative and qualitative analysis, paired with a comparison to the record of securities defendants in judicial proceedings in the Southern District of New York, shows that the SEC does not enjoy more favorable outcomes in front of ALJs than it does in front of Article III judges. Instead, ALJs regularly rule against the agency; there is no home field advantage when it comes to administrative proceedings.  The only way to conclude otherwise is to include default and uncontested proceedings in the record – the SEC wins all of those when ALJs hear the cases, but it could hardly be otherwise, and even then, ALJs work up a record, and write detailed opinions.

Moreover, there is no reason to conclude that ALJs take the power to decide what happens in administrative proceedings away from politically accountable commissioners.  Instead, if you look at the elaborate initial judgments, you can see that the SEC’s adjudicators exist in part to develop a record on which the Commission can render a final decision.  Commissioners accept ALJ recommendations in contested cases approximately half of the time.   This suggests that the Commission is both the de facto and de jure final word in administrative proceedings.

SEC ALJs serve politically accountable commissioners by supervising high-quality administrative proceedings as impartial adjudicators.  They have been around for decades, and the Supreme Court has affirmed ALJs decisions dozens of times without worrying about whether the administrative proceedings posed problematic Appointments Clause issues.  It shouldn’t change anything now.

David Zaring is an Associate Professor at The Wharton School.

This post is part of a symposium on Lucia v. SEC. All of the posts can be viewed here.

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