Last Friday afternoon, the Securities and Exchange Commission quietly issued what is arguably its most humiliating administrative order ever. In one fell swoop, the SEC unconditionally gave up against more than 40 enforcement targets the agency had previously spent untold staff resources prosecuting over the past decade. In essence, what I’ve previously called the SEC’s “Hotel California” adjudication system just imploded and collapsed into a pile of smoldering regulatory rubble.
It was a fitting end to a catastrophically bad policy choice made by agency leaders a decade ago. Not content to allow enforcement targets to defend themselves in federal courts with independent, Article III judges overseeing trials before juries, SEC leaders got too clever by half. Exploiting a provision of the Dodd-Frank act of 2010, they began shoehorning as many enforcement prosecutions as possible into their own in-house adjudication system, where cases are initially decided by SEC employees called administrative law judges (ALJs) and appeals are heard by the SEC commissioners themselves.
In hindsight, it’s amazing that anyone could have thought this obviously unconstitutional gambit would end well.
‘Enforcement 40’ for 2020
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