SEC ALJ Initial Decisions Are Not Very Appeal-ing


Few respondents in Securities and Exchange Commission administrative proceedings are exercising their option to appeal the initial decisions issued by administrative law judges to the full SEC.

The last three years have seen a steady decline in the percentage of initial decisions appealed to the commission.

Respondents appealed approximately 30 percent of ALJ decisions in 2013. That number dipped to 23.8 percent in 2014 and 21.6 percent last year. As of July 21, respondents have asked for SEC review in only 10 percent of ALJ cases this year.

SEC ALJ Appeals

There are many reasons for the low number of appeals in general, and for the decline in appellate review requests.

The first is structural and institutional. Respondents are taking their cases before the very body that voted to bring the action against them, and face a difficult challenge in convincing the commission that the decision to initiate the proceedings was improper or that the in-house judge somehow mishandled the case.

Another reason few respondents try the appellate route is a very practical one—follow the money. An appeal keeps the legal fee meter running for another year or more, as the SEC has no established deadlines for the review period. The lengthy review process also extends the period of uncertainty for respondents about their financial condition or their future in the securities industry.

As that legal fee meter continues to spin, respondents may also see a very low probability of a return on their investment. Appeals have historically had a low rate of success, and with two SEC commissioner vacancies, the current makeup of the commission is generally sympathetic to the Enforcement Division.

As SEC Chair Mary Jo White stated in a 2013 speech, “a robust enforcement program is critical to fulfilling the SEC’s mission to instill confidence in those who invest in our markets and to make our markets fair and honest.”

That belief does not instill confidence in respondents going before the commission.

You can go here to read the full story, with data from Bloomberg Law’s SEC ALJ Enforcement Tracker.