On August 22, 2018, the SEC issued an Order that addressed outstanding issues related to its administrative proceedings ("APs") and recommenced all pending APs scheduled to appear before an administrative law judge ("ALJ"). As previously covered, on June 22, 2018, the SEC had stayed the APs in response to the Supreme Court's ruling in Lucia v. SEC, which held that the SEC practice of hiring ALJs was unconstitutional. In July, President Donald J. Trump signed an Executive Order that made ALJs exempt from Civil Service competitive hiring rules and examinations.

Under the Order, the SEC (i) "reiterated" its approval of the appointments of its ALJs "as our own under the Constitution", (ii) lifted its post-Lucia stay of all pending APs and (iii) required that respondents in pending proceedings be given the opportunity for a new hearing "before an ALJ who did not previously participate in the matter." For pending proceedings, the Order also vacated prior opinions and previously set deadlines, and allows for parties to agree to alternative procedures. All pending cases must be assigned to a new ALJ by September 21, 2018.

In an attachment, the SEC listed dozens of impacted cases and noted that ALJs were directed to inform all affected parties of the Order.

Commentary

While this long-awaited decision likely resolves the SEC's Lucia problem, there are still questions surrounding the SEC's use of APs. Now that the SEC will resume bringing contested actions as APs, it will be interesting to see how frequently it will do so and in what kinds of cases. Will the SEC return to an aggressive use of APs in all kinds of cases, like it pursued in 2014 and 2015 before the Constitutional challenges to the process, or will it take a more limited approach and only pursue cases against registered persons and entities similar to the pre-Dodd-Frank era? There are also other challenges to the AP process that remain unresolved, including claims that APs are invalid because they violate the equal protection clause, the due process clause, and the right to a jury trial under the 7th Amendment. While plaintiffs have not had much success based on these arguments, it is likely they will continue to push them going forward.

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