Rapidly Evolving Judicial Landscape, and the Sec’s Response to Critics

The Dodd-Frank Wall Street Reform and Consumer Protection Act bestowed upon the Securities and Exchange Commission the right to pursue an enforcement action against any person either in federal court or through an administrative proceeding. Since 2012, the SEC has chosen to pursue an unprecedented percentage of its enforcement actions administratively, and it has prevailed in those administrative proceedings at a much higher rate than in federal court. Since mid-2015, administrative respondents have begun turning to the federal courts for relief, alleging that administrative law judges, the SEC employees who preside over administrative proceedings, are appointed in violation of Article II’s Appointments Clause and therefore have no lawful authority to hear cases. The challengers found early success in a number of district courts, both in establishing subject matter jurisdiction and in securing preliminary injunctions on the merits. Between August 2015 and December 2016, however, the momentum quickly shifted in favor of the SEC. Five federal appellate courts—the Second, Fourth, Seventh, Eleventh, and D.C. Circuit Courts of Appeals—have all found that the federal courts lack subject matter jurisdiction to hear challenges addressing an ALJ’s constitutional authority to preside over an enforcement action until the respondent has exhausted all administrative remedies provided by the relevant statute. In other words, the appellate courts have held that an administrative respondent may not collaterally attack the constitutionality of an administrative proceeding in federal court before the administrative proceeding is complete—rather, the administrative respondent must wait