The SEC has come under fire lately for its use – some might say overuse – of internal administrative proceedings. The SEC’s use of administrative proceedings and administrative law judges (ALJs) is by no means unique within the federal government. Thirty-four agencies currently have ALJs. Nor is the SEC the heaviest user of administrative proceedings or ALJs; the Social Security Administration has that distinction, with more than 1,300 ALJs according to the most recent data available. The SEC, by comparison, has only five ALJ positions, two of which are recent additions.
The SEC’s ALJs have been in the spotlight due to a provision in Dodd-Frank that expands their ability to impose fines. In the past, the SEC could impose monetary sanctions only on individuals and entities registered with the Commission – typically brokers, investment advisors, and similar entities and their employees. By registering with the SEC, it was reasoned, these individuals and organizations had submitted to the SEC’s jurisdiction. Others could be brought before the SEC’s tribunals for violating federal securities laws, and the ALJs could make findings of fact (that is, decide which side’s version of the facts was correct) and issue cease and desist orders, but could not impose fines. Instead, the SEC’s lawyers would have to bring a separate case in federal district court. Under Dodd-Frank, registered and unregistered persons are treated the same.
Administrative proceedings have their advantages. Like a federal judge, an ALJ can issue subpoenas, hold hearings, and decide cases. Because an ALJ’s cases deal with a very narrow area of law – only that related directly to the ALJ’s agency – the ALJ’s knowledge of that area tends to be deeper than that of a federal judge who hears a broad range of civil and criminal cases. The proceedings before ALJs tend to be somewhat truncated, with fewer procedural requirements than federal district court, allowing the case to be decided more quickly.