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Copyright (c) 2016 North Carolina Banking Institute
North Carolina Banking Institute

NOTE & COMMENT: Judge, Jury, and Executioner: SEC Administrative Law Judges Post-Dodd Frank

March, 2016

North Carolina Banking Institute

20 N.C. Banking Inst. 413


Giles D. Beal IV


I. Introduction

Representative Scott Garrett, Chairman of the Financial Subcommittee on Capital Markets and Government-Sponsored Entities, recently stated, "strong enforcement of the securities laws is an essential part of the SEC's mission to protect investors and maintain a fair and efficient marketplace, but in recent years the agency has transformed into a veritable judge, jury, and executioner with its blatant overuse of their in-house courts." 1 Representative Garrett's comments stem from the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank"), which significantly expanded the powers of the Securities and Exchange Commission's (the "SEC") administrative law judges ("ALJs"). 2 Specifically, Dodd-Frank extended SEC ALJs' ability to levy civil penalties on non-registered individuals and entities, while simultaneously expanding the range of penalties available to ALJs in administrative hearings. 3

With this expansion of power, a variety of constitutional challenges over the role of SEC ALJs have arisen in federal courts. 4 While most industry interest has focused on violations of due process and equal protection, 5 constitutional challenges to the appointment and removal process of SEC ALJs have recently gained more traction among federal judges. 6 These challenges primarily focus on the disputed classification of SEC ALJs as "inferior officers" as opposed to mere employees under the Constitution. 7 Currently, SEC ALJs are considered mere employees and are hired by the chief SEC ALJ. 8 However, under the Appointments Clause of the Constitution, if SEC ALJs are held ...
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