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Government Enforcement Exposed - "The GEE"
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25 Apr 2018 LUCIA ORAL ARGUMENT HIGHLIGHTS PHILOSOPHICAL TENSIONS

  The Supreme Court heard oral argument Monday in Lucia v. SEC. And while it was not the “cage match” that some hoped for, it did raise important questions. Both the parties’ arguments and the Justices’ questions indicated that the Court has several conflicting issues to resolve in deciding whether SEC ALJs are hired in violation of the Appointments Clause. One of the tensions which got the most attention seemed to be whether SEC ALJs should be “politically accountable” to the President since they are essentially part of the executive branch or whether they should maintain a greater degree of “independence” because they function as adjudicators, akin to Article III judges. The Justices also spent substantial time trying to discern how their decision in Lucia…

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06 Apr 2018 COULD THE SUPREME COURT’S LUCIA ARGUMENT BECOME A CAGE MATCH?

    On April 23, the U.S. Supreme Court will hear what may be one of the most impactful cases for the Securities and Exchange Commission, and perhaps other federal administrative agencies, in a long time.  In Lucia v. SEC, the Supreme Court will hear arguments – including from the U.S. Solicitor General – that the way that the SEC’s administrative law judges (ALJs) are appointed violates the U.S. Constitution’s Appointments Clause.  For prior posts, see [Jan 23, 2018; Jan 16, 2018, Jan 24, 2017, Sept 2, 2016].   The briefing is essentially completed, and as the Solicitor General’s recent request for divided argument suggests, the battle-lines here are untraditional.  In fact, the divergent positions staked out by the three parties that are arguing (to…

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23 Jan 2018 First-Time Supreme Court Advocate Appointed to Argue the SEC’s Case in Lucia

  To follow-up on our previous post, on January 18, the Supreme Court appointed Anton Metlitsky of O’Melveny & Myers to argue on behalf of the SEC in Lucia after the Solicitor General abandoned its defense of the SEC’s position in its response to Lucia’s petition for certiorari. This will be Metlitsky’s first argument before the Supreme Court.   According to the National Law Journal, Supreme Court tradition dictates that the Circuit Justice for the circuit that decided the case – here, the D.C. Circuit – picks one of his or her former clerks in these situations. Chief Justice Roberts (Circuit Justice for the D.C. Circuit) selected Metlitsky, one of his former clerks. The article also stated that, according to tradition, the appointment goes to…

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16 Jan 2018 SEC’s Appointments Clause Dilemma Gets Worse

  On January 12, the Supreme Court granted certiorari in SEC v. Lucia, which will decide whether the Securities and Exchange Commission’s (SEC) administrative law judges (ALJs) are appointed consistently with the Constitution’s Appointments Clause. Unfortunately for the SEC, at least right now, no one is arguing that the SEC’s process is constitutional. What the Court does in this case will potentially upend not only the SEC’s ALJ process but other agencies’ as well.   As this blog has explained here and here, there is a clear circuit split on whether the way that the SEC hires its ALJs comports with the Appointments Clause. The Appointments Clause provides:   [The President] shall nominate, and by and with the Advice and Consent of the Senate, shall…

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24 Jan 2017 The SEC’s Appointments Clause Dilemma

  The U.S. Securities and Exchange Commission (SEC) has an Appointments Clause problem. Actually, it has two. Currently, the Commission’s ability to make decisions is limited in two ways: (1) as of last Friday, there are now only two sitting Commissioners, including no SEC Chairperson, rather than the full complement of five; and (2) a recent federal appellate court decision declaring the SEC’s process of hiring administrative law judges (ALJs) unconstitutional, thus casting doubt on the many activities those judges perform. Until these can be resolved, the agency’s ability to function generally, and in particular its ability to act as an enforcement agency, may be compromised.   The Appointments Clause of the Constitution states:   [The President] shall nominate, and by and with the Advice and…

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07 Dec 2016 U.S. Supreme Court Decides Salman, Reaffirms Broader View of Insider Trading

  Just like that, the Newman/Salman insider trading saga has come to a close. For now, at least. These cases have generated a good bit of ink on this blog. Yesterday, the U.S. Supreme Court unanimously decided United States v. Salman, affirming Salman’s conviction for insider trading, just two months after oral argument. The opinion, authored by Justice Samuel Alito, was not much of a surprise in what it decided, but was somewhat more interesting in what it did not address.   The Court concluded that Salman lay in the “heartland” of its prior prohibition in Dirks v. SEC. In Dirks, the Court said that a tipper breaches his or her fiduciary duty (and therefore commits insider trading) when the tipper either receives something of…

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06 Oct 2016 U.S. Supreme Court Revisits Insider Trading in Salman

  At long last, the U.S. Supreme Court heard oral argument yesterday in United States v. Salman. As readers of this blog know from prior posts, Salman is the first insider trading case the Supreme Court has taken in about 20 years and the most important one since Dirks in 1983. In the last two years, a split has developed in the circuit courts with regard to how to define insider trading – a task made more difficult because Congress has never defined what insider trading is, let alone expressly criminalized it.   The Supreme Court said in Dirks that, to have insider trading, the corporate insider must breach his or her fiduciary duty, which often means that the insider sought to, and did, receive…

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07 Sep 2016 SEC Changes Some of Its Procedural Rules After Constitutional Challenges

  In our last post, we discussed some of the constitutional challenges to the Securities and Exchange Commssion’s (SEC) in-house tribunal. Though these challenges have thus far been unsuccessful, they appear to have prompted the SEC to amend some of its rules of practice to address at least some of the criticisms leveled against its administrative proceedings.   One persistent criticism has been that the length of time from initiation of administrative proceedings through hearing is substantially too short. Previously, an ALJ’s initial decision had to be filed no more than 300 days from the service of the order instituting proceedings. However, the SEC has now increased the time between its initial filing in an enforcement action and the hearing (at least in “appropriate” cases)….

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02 Sep 2016 D.C. Circuit Affirms Constitutionality of SEC’s In-House Tribunals

  The U.S. Court of Appeals for the D.C. Circuit recently became the first appellate court to conclude that the U.S. Securities and Exchange Commission’s (SEC) in-house administrative tribunals are constitutional and do not violate the Appointments Clause.   The constitutionality of the SEC’s in-house administrative courts has been questioned repeatedly since the Dodd-Frank Act dramatically expanded the kinds of cases the SEC could litigate on its home turf and the kinds of remedies it could obtain there, including against entities the SEC does not traditionally regulate. Since Dodd-Frank, the SEC has made no bones about its increased attraction to litigating cases in-house that it previously brought in federal district court. The SEC benefits from a shorter timeframe from initiating the action to its conclusion,…

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29 Apr 2016 Accounting Fraud Getting Increased Attention from the SEC and Class Action Counsel

Accounting and financial disclosure issues are increasingly becoming the focus of litigation – both with the Securities and Exchange Commission (SEC) and the plaintiffs’ class action bar – according to recent pronouncements from the SEC and a leading research firm that tracks securities class actions.   Last week, the SEC announced two financial fraud cases against companies and their former executives, accusing them of various accounting failures that gave investors inaccurate views of company finances. These cases appear to be among the fruits of the SEC’s Financial Reporting and Audit Task Force, created in 2013 to strengthen the SEC’s efforts to identify securities law violations relating to the preparation of financial statements, issuer reporting and disclosure and audit failures. The Task Force’s efforts have taken…

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