The question presented in Lucia v. SEC is a limited question with, as Kent Barnett told us at the beginning of this symposium, limited implications. Cases that have been decided will not be affected. Prospectively, the Appointments Clause issue can be resolved with a stroke of each agency’s pen, much like the SEC did in November. The same ALJs that served at the SEC continue to serve, and have decided cases following the same procedures as they did before the November appointment. To be sure, there are thousands of open cases handled by ALJs and administrative judges that might be upset, causing significant disruption. And Ray Lucia would like his case dismissed, so that he can go back to peddling his “Buckets of Money” investment strategy to unsuspecting seniors. But overall, the implications of the case seem rather trivial relative to the excitement that the case has generated.

The excitement stems from the hope and hype that Lucia will begin to peel back the administrative state. Indeed, one must read no further than petitioners’ brief to understand that Lucia’s hope is not only that the case against him be dismissed, but to prevent agencies from litigating anywhere except in court. The unstated premise is that courts are unbiased, whereas ALJs who are agency employees are, by definition, biased in favor of the agency that employs them. The petitioners and five amicus briefs supporting petitioners find empirical support for their belief in a fascinating piece of reporting by Jean Eaglesham of the Wall Street Journal (WSJ), published in May 2015. The WSJ story purported to show that ALJs are a captive forum where the SEC wins 90% of the time, compared with a 69% success rate in court. The WSJ piece also insinuated that the SEC capitalized on this purported advantage by sending over 80% of cases to ALJs.

It was a news story heard around the (securities) world. It has been cited over one hundred times, including in dozens of academic articles, briefs and opinions, and its finding has become one of those things we know to be true. Except that it is false.

In an amicus brief co-authored with Joseph Grundfest we show that neither of the two main claims advanced by the WSJ story is true. Even at peak in 2014, the SEC did not send over 80% of contested cases to ALJs. It sent 38%, and that percentage has since declined to about 10%. And while it is true that the SEC tends to win when it litigates, it wins just as often in court as it does before ALJs. Regardless of whether we tally cases by the action or by individual defendant, the SEC prevails in about 85% of cases regardless of forum. In fact, once we account for case differences that we can identify, the SEC loses slightly more often before ALJs than it does in court.[1] This is truly a null result: we cannot reject the hypothesis that outcomes in court and before ALJs are different. That does not imply that the likelihood of success in court and before ALJs is the same, but it does mean there is no clear evidence the SEC’s likelihood of winning before ALJs is higher.

How did the WSJ get it so wrong? After we submitted the amicus brief, we received the data that the WSJ used to produce the news story and it confirmed our suspicions. The figure showing that over 80% of cases are filed in administrative proceedings comes from the SEC’s annual reports, which included in the tally settled cases, uncontested cases, and cases that cannot be filed in court, such as actions to bar individuals from the securities industry, revoke registration of broker-dealer and investment adviser firms, and for delinquent filing. It’s a useful figure, but not for the proposition advanced by the WSJ or by the petitioners in Lucia.

The WSJ figure showing that the SEC wins in 90% of cases decided by ALJs and in 69% of cases in court compares apples to oranges. We include in our analysis all decisions handed down by a third-party adjudicator, such as summary judgments, and do not rely exclusively on cases decided after a trial or a hearing, which is the WSJ’s approach.[2] By omitting summary judgments, the WSJ compared all cases litigated before ALJs with only the weakest SEC cases litigated in court (i.e., the small minority of cases in which the defendant survived the SEC’s motion for summary judgment).[3] Once apples are compared to apples, the difference in win rates disappears.

One might object and note that the question of bias has nothing to do with the legal argument in Lucia. Fair enough, as we point out in our amicus brief. The amicus brief has nothing to with the question presented but everything to do with this litigation. It is no coincidence that the petitioners begin their argument by citing heavily from the WSJ article. Without evidence of bias, the constitutional injury caused by the Appointments Clause violation is merely theoretical. And the remedy – political control over appointments – would presumably only make bias worse. But that is not what Lucia is about. Lucia is merely a stepping stone to curtailing or eliminating administrative adjudication. And that is why the question of bias does matter. Our hope is that the Court reads the amicus brief and does not cite it or the WSJ.

[1] The result is statistically significant at the 5% level in 3 of 33 regressions, which is not robust.

[2] The WSJ botched the analysis further by including ALJ cases decided by summary disposition (the equivalent of summary judgment in court) but excluding summary judgments.

[3] In cases decided by summary judgment, the SEC wins 96% of the time. We reviewed 604 cases decided by judges, and 420 of those (70%) were summary judgments.

Urska Velikonja is Professor of Law at Georgetown University Law Center.

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