The Securities and Exchange Commission's Office of the Inspector General ("OIG") recently released findings from its extensive investigation into allegations of potential bias against respondents in SEC administrative proceedings. The OIG report comes at a time when the fairness of the SEC's in-house administrative forum is under scrutiny from both inside and outside of the agency.
The OIG's investigation stemmed primarily from 2015 media reports in which former SEC ALJ Lillian McEwen was reported to have said that during her tenure she felt pressured by SEC Chief ALJ Brenda Murray to rule for the SEC's Division of Enforcement, and that Chief ALJ Murray punished her when she ruled in favor of respondents, and Murray questioned her loyalty. The OIG's investigation included interviews with some fifteen individuals, including current Commission employees and current and former ALJs.
The OIG found no evidence in support of McEwen's suggestion that Murray improperly influenced ALJs and was biased against respondents in administrative proceedings. While McEwen reportedly alleged that Murray transferred cases away from her as a punishment when Murray was unhappy with McEwen's rulings, McEwen apparently could not identify any specific cases or even the number of cases in which this occurred. Instead, McEwen generally alleged that Murray reassigned McEwen's cases, criticized her, and resorted to such small slights as refusing to provide office support or requiring her to complete leave slips if she was a few minutes late reporting to work.
After interviewing many ALJs—including Chief ALJ Murray—the OIG found nothing to corroborate McEwen's allegations of bias and pressure. As to Murray's alleged criticism of McEwen, Murray denied that she had ever sought to influence the outcome of McEwen's cases. Asked whether she demanded that McEwen and other ALJ's be "loyal" to the SEC, Murray responded that personal loyalty to Murray was not important, but that it was important to perform one's job as an ALJ with distinction.
Regarding allegations that ALJs were pressured to shift the burden of proof in SEC administrative proceedings to respondents, while the OIG found no evidence of such pressure, some individuals interviewed by the OIG did identity "systemic causes" of this perception. These included such things as de novo review of decisions by the Commission, constraints owing to having to follow Commission precedent, the SEC's rules of practice (currently being considered for amendment), limited access by respondents to discovery and case files, and compressed timelines in the proceedings.
Thus, while the OIG found no merit to the most significant allegations of overt bias, it did identify some "systemic" opportunities for improvement which will undoubtedly provide ammunition for critics of the SEC's administrative forum. It remains to be seen if the Commission will unilaterally adopt changes to take advantage of these opportunities for improvement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.