	Introduction

The Securities and Exchange Commission's (SEC's) increased use of its in-house administrative forum to resolve charges against persons alleged to have violated federal securities laws is receiving considerable attentio n. Congressional hearings have discussed the issue; several cases are challenging the SEC's authority to use the forum; and the press has widely covered the issue. This report will take a brief look at the administrative law process in general; the likely reason for the increased use by the SEC of the administrative forum; selected cases challenging the SEC's use of the administrative forum on the bases of constitutional violations of due process and equal protection and of unconstitutional selection of the SEC's administrative law judges; possible implications of these cases; and congressional interest in the issue. Section 929P(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), titled "Authority to Impose Civil Penalties in Cease and Desist Proceedings," eliminated the limitation on the SEC's authority to impose civil money penalties in administrative actions. As mentioned in the "Introduction," plaintiffs have brought suit against the SEC's administrative forum as violating their due process and equal protection rights and as violating the Constitution's Appointments Clause in the way that the SEC chooses its administrative law judges. In addition to defending cases brought against its use of the administrative forum, the SEC has responded to these challenges by issuing in December 2014 a Commission Opinion indicating that it intends to continue to use the administrative forum aggressively to charge alleged securities wrongdoers and to appeal court opinions that strike down the agency's use of its administrative forum. In arriving at its decision, the Seventh Circuit looked at which of two Supreme Court decisions controlled Bebo's constitutional challenges to the SEC's administrative forum: Free Enterprise Fund v. Public Company Accounting Oversight Board , which plaintiff urged as allowing a direct route to federal district court to challenge an agency's administrative proceedings as unconstitutional, or Elgin v. Department of the Treasury , which the SEC urged as cutting off a plaintiff's federal district court challenge if the plaintiff has an eventual chance to bring review of the agency's proceedings in a federal court of appeals. On March 28, 2016, the Supreme Court denied certiorari in Bebo's suit challenging the constitutionality of the SEC's in-house administrative forum. The court first addressed the SEC's argument that the district court did not have subject matter jurisdiction because of the procedure set out by 15 U.S.C. The plaintiffs in Timbervest waited for a final administrative decision before taking their constitutional challenge to the court of appeals. All three cases held that the plaintiffs had to exhaust their administrative remedies before they could challenge in a federal court of appeals the SEC's final action and thereby the agency's violation of their constitutional rights. The Tilton decision, however, appeared to criticize the reasoning in Hill and held that the plaintiff's argument about the unconstitutionality of the ALJ selection could not be brought in court until the SEC reached finality in the administrative proceeding. Should the plaintiffs in Hill and Duka be ultimately successful, the result could have an impact on agencies in addition to the SEC. Instead, the discussion is intended to set out only possible ramifications of a definitive decision on the constitutionality of SEC ALJ appointments and tenure protections.
The Securities and Exchange Commission's (SEC's) increased use of its in-house administrative forum to resolve charges against persons alleged to have violated federal securities laws has generated several court decisions, as well as congressional and media attention. Section 929P(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which gave the SEC the authority to impose civil money penalties, as well as cease-and-desist orders, on almost any person, is often stated as the reason that the SEC has increased its use of the administrative forum, instead of taking alleged wrongdoers to court.
Plaintiffs in several cases are challenging the SEC's administrative forum as violating their due process and equal protection rights and as violating the Constitution's Appointments Clause in the way that the SEC chooses its administrative law judges (ALJs). The SEC has stated that it intends to use the administrative forum aggressively to charge alleged securities wrongdoers and to appeal opinions that strike down the agency's use of the administrative forum.
In three decisions, Jarkesy v. SEC, Wing F. Chau v. SEC, and Bebo v. SEC, federal district courts have held that the plaintiffs had to exhaust their administrative remedies (i.e., reach a final administrative decision within the SEC) before they could bring their constitutional challenges of due process and equal protection violations to a federal court of appeals. Federal courts of appeals have affirmed the district court decisions in two of these cases—Jarkesy and Bebo. The decisions did not address the constitutional challenges but, instead, required that the plaintiffs abide by the statutory procedural scheme for agency proceedings before bringing any court challenges. The Supreme Court denied certiorari in Bebo's challenge to the constitutionality of the SEC's in-house administrative forum.
In contrast to the decisions dealing with due process and equal protection claims, two federal district court decisions challenging the constitutionality of the SEC ALJ selection process, Hill v. SEC and Duka v. SEC, held that the plaintiffs could proceed in federal district court with their constitutional challenges because of the likelihood of their success. However, another decision on a challenge to the constitutionality of the SEC ALJ selection process, Tilton v. SEC, appeared to criticize Hill and held that the plaintiffs could not go to court until the SEC reached finality in the administrative proceeding.
A definitive court decision (e.g., a U.S. Supreme Court decision) on the constitutionality of plaintiffs' due process and equal protection claims and/or on the constitutionality of the appointment and tenure protections of SEC ALJs may be necessary to resolve these issues. It is possible that such a decision could have an impact on the administrative forums or the ALJs of agencies in addition to the SEC.
This report will be updated as events warrant.