THE SECURITIES AND EXCHANGE COMMISSION’S HOME FIELD ADVANTAGE

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Securities and Exchange Commission

The expansion of the rule making powers of our federal bureaucratic agencies has led to the increasing use of in-house judges to decide regulatory enforcement actions. Currently more than two dozen federal agencies regularly use in-house administrative law judges. One of those agencies is the Securities and Exchange Commission. The SEC has been in the news lately as it attempts to defend its own increased use of in-house judges as a result of the Dodd-Frank financial reform law.

For many years critics of the SEC’s administrative process have claimed that the process is suspect because the SEC gets to hand pick the judge who will decide the case. Not surprisingly, getting to pick the judge gives you a significant home field advantage. According to the Wall Street Journal, between October 2010 and March 2015 the SEC won 90% of the cases which were decided by its in-house judges. This 90% success rate is much better than 69% success rate the SEC achieved over the same period when the enforcement action was brought in a federal court.

The SEC’s home field advantage continues on appeal where the initial review is before the SEC’s own Commissioners rather than a federal appeals court. According to the Wall Street Journal, on the Commissioners found in favor of the SEC 95% of the time.

The SEC’s justification for using internal administrative law judges is that the process is faster and more efficient than cases in federal court. Obviously, one of the reasons that the process is faster is because the due process rights of the accused are limited. Although the SEC’s official position is that it has no home field advantage, if you were wrongly accused, where would you want to have your case heard?

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