August 26, 2015
A CEO Is Told To Wait On Claims That The SEC ALJs Are Unconstitutional
Posted by David Zaring

In what I think is the first appellate decision on the issue, the Seventh Circuit held that timing problems prevented courts from entertaining collateral attacks on SEC administrative proceedings.  It means that defendants have to raise their constitutional claims before the ALJs, and then the SEC itself on appeal, before they can get into court on appeal from that.

These timing issues have always looked really problematic for the plaintiffs.  Essentially, they have been arguing that they think the SEC is about to open an administrative case against them, and that a court should tell the SEC that it can't do that, because administrative cases are unconstitutional. Usually, claiming that you think the government is about to do something isn't a very good reason to sue the government.  Why not wait and see?  You'll save the court's time and keep it from issuing an advisory opinion.

Put that way, it's not surprising that a CEO anticipating administrative proceedings against her was told to make her constitutional arguments to the agency, if the agency does, in fact, file papers against her, before trying to get the courts involved.

On the other hand, the case that has ginned up these suits, Free Enterprise Fund v. PCAOBlet a couple of accountants make their constitutional claims against PCAOB before it had lifted a finger against them.  So the Seventh Circuit basically said "we don't think the Court meant to get rid of the doctrines of standing, finality, and exhaustion in that case," which is sort of hand waving, but probably true.

Anyway, it increases the likelihood that we will soon get an initial decision from an SEC ALJ ruling whether SEC ALJs are unconstitutional.  I'm very much looking forward to that.  You can find a gloss on the opinion here, and a link to the actual opinion at the end of the gloss.

Administrative Law, Securities | Bookmark

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