The Securities and Exchange Commission has successfully fended off recent challenges to its use of administrative proceedings to hear cases about potential violations, but the courts did not resolve the underlying constitutional issues regarding the use of administrative courts to decide cases, the New York Times reported today. That issue is one part of a larger debate over the SEC’s increased use of administrative proceedings to impose penalties, which some have claimed gives the agency an improper “home court” advantage. The commission will have to continue to defend how it channels cases into administrative proceedings from congressional efforts to push enforcement actions into federal court. A broad financial overhaul proposal offered by Representative Jeb Hensarling, the Texas Republican who is chairman of the House Financial Services Committee, includes provisions that would effectively gut the use of in-house courts for cases. The roots of the dispute can be traced to when Congress, in the Dodd-Frank Act, gave the agency almost unfettered discretion to choose to seek penalties in court or in an administrative proceeding. The change raised the ire of defense lawyers, who saw cases routed to the administrative process rather than being filed in a court, where the lawyers would have greater rights to obtain evidence and have a jury decide the case. In response, defendants filed a number of lawsuits, claiming that the administrative proceedings are unconstitutional because of the way in which the in-house judges are appointed, asking that the cases be halted until the constitutional issue can be decided.
