December 8, 2017

Administration Questions Validity of SEC Judges

Here’s the intro from this WSJ article:

The Trump administration on Wednesday abandoned its defense of the Securities and Exchange Commission’s in-house judicial system, siding with opponents who say the hiring process for the SEC’s judges is unconstitutional. In a brief filed with the U.S. Supreme Court, lawyers for the Justice Department wrote they now consider the SEC’s administrative law judges to be officers like other presidential appointees, instead of employees who are picked through a human-resources process. That means the way the SEC hires the judges may violate a constitutional clause that safeguards separation-of-powers principles.

The Justice Department’s brief didn’t explicitly describe the judges’ appointments as unconstitutional, but said the selection process for the in-house judge at issue in the case “did not conform” to a constitutional requirement. Mark Perry, a partner at Gibson, Dunn & Crutcher LLP who represented the challengers, said the Supreme Court’s involvement is still needed to resolve a disagreement between lower courts over the judges’ status. The Supreme Court would have to appoint an outside party to argue the case since the Justice Department has turned its back on defending it, the brief says. “We are one step closer to victory,” Mr. Perry said Wednesday.

The SEC didn’t sign the Justice Department’s brief. The regulator likely felt it couldn’t join the position because SEC commissioners have previously issued opinions in contested cases stating that judges are employees, not officers, said Andrew Vollmer, a professor at the University of Virginia School of Law and a former deputy general counsel of the SEC. An SEC spokesman declined to comment.

SEC Ratifies ALJ Appointments: Are Prior Decisions at Risk?

In response to the Trump administration’s action, the SEC announced that it had ratified its prior appointments of its current ALJs in order to resolve “any concerns that administrative proceedings presided over by its ALJs violate the Appointments Clause.”

The SEC’s decision to ratify these prior appointments raises an important issue – are cases that were previously decided at risk of being invalidated? Check out this tidbit from a K&L Gates memo about the D.C. Circuit case challenging the ALJ system that’s currently before the Supreme Court:

Despite a question from the bench, the parties did not discuss potential remedies to the possible Appointments Clause violation in detail. Should the D.C. Circuit rule in favor of Petitioners, the SEC Commissioners could ameliorate the issue simply by reappointing the Commission’s five ALJs directly. Because the SEC may risk invalidating other adjudicated findings of liability by acknowledging that its ALJs are unconstitutionally appointed, the SEC may instead choose to stay all administrative proceedings in which a respondent has the option to seek review in the D.C. Circuit while it appeals the case to the Supreme Court.

Interestingly, as part of its order ratifying the ALJ appointments, the SEC lifted a stay on administrative proceedings subject to the jurisdiction of the 10th Circuit that it had put in place in response to a decision in that circuit holding that they were unconstitutionally appointed.  So, it looks like the SEC is all-in on the ratification approach.

When you think about it, the administration’s action left the SEC with no other choice – but it looks like there’s really big can of worms that could be opened depending on how the Supreme Court ultimately resolves the issue.

FCPA: DOJ Announces Revised Corporate Enforcement Policy

Late last month, the DOJ announced a revised FCPA corporate enforcement policy. The policy – which builds upon the DOJ’s pilot program that we’ve previously blogged about – is intended to provide further enhancements for cooperation. This Simpson Thacher memo reviews the key elements of the new policy (we’ve posted oodles of memos in our “FCPA” Practice Area). Here’s the intro:

On November 29, 2017, Deputy Attorney General Rod J. Rosenstein announced a revised U.S. Department of Justice Foreign Corrupt Practices Act Corporate Enforcement Policy, designed to further incentivize companies to self-report potential FCPA violations. Building on the framework announced in a DOJ pilot program last year, the new policy offers companies that voluntarily self-disclose, fully cooperate, and timely and appropriately remediate substantial cooperation credit—including the presumption of a declination from DOJ criminal prosecution (absent certain aggravating circumstances).

Companies will still be required to pay all disgorgement, forfeiture, and/or restitution resulting from any misconduct at issue. The policy has been added to the U.S. Attorneys’ Manual, which guides prosecutors on when and how to exercise discretion in reaching charging decisions.

The policy has no impact on other U.S. or foreign enforcement authorities, including the SEC.

John Jenkins