Emory Law Journal

Insider Trading: The Problem with the SEC’s In-House ALJs
Lucille Gauthier *Executive Managing Editor, Emory Law Journal, Volume 67; Emory University School of Law, J.D., 2018; University of Oklahoma, B.A., 2015. I would like to thank my faculty advisor, Professor Jonathan Nash, for his guidance and enthusiasm throughout the writing process. I would also like to thank the members of the Emory Law Journal Executive Board, particularly Caryn Wang, Matthew Demartini, and Janiel Myers for their feedback and edits in preparing this Comment for publication. Finally, to my friends and family: thank you for enduring the writing process with me. I am endlessly grateful for your love and support. ,

Abstract

Following the publication of an inculpating Wall Street Journal article, the United States Securities and Exchange Commission (SEC) has been under fire regarding the potential bias of its administrative law judges (ALJs). The success rate of the SEC in its administrative proceedings has raised questions concerning the SEC’s increased use of administrative proceedings over the federal court system. Defendants have become frustrated, feeling that the deck is stacked against them and that the ALJs’ minds are decided before the administrative proceedings begin. The image of bias has resulted in appeals in administrative proceedings and federal courts as defendants feel that they have been denied fair opportunities to be heard. The very appearance of justice is crucial to the legal system, particularly where the SEC seeks to circumvent federal courts to conserve resources and avoid overloading the federal docket.

This Comment analyzes the various sources of bias in the SEC’s ALJs. It then evaluates three mainstream proposals to reduce bias: (1) eliminating administrative proceedings, (2) allowing defendants to select the forum for their cases, and (3) establishing a separate appeals board for defendants and non-parties to raise allegations of ALJ bias. Ultimately, this Comment rejects each of these proposals for failing to reach the root of the bias problem. This Comment concludes that the government should adopt a new solution by restructuring the ALJ system into a neutral pool of ALJs who would be randomly assigned to administrative proceedings at the various federal agencies.

Introduction

“People generally see what they look for, and hear what they listen for . . . .”  1Harper Lee, To Kill a Mockingbird 174 (Warner Books 1998) (1960). Or in the case of the United States Securities and Exchange Commission (SEC), its in-house administrative law judges (ALJs) hear what they have been ordered by the agency to hear. The SEC faces constitutional challenges to its administrative proceedings and ALJs from numerous angles.  2See Tyler L. Spunaugle, The SEC’s Increased Use of Administrative Proceedings: Increased Efficiency or Unconstitutional Expansion of Agency Power?, 34 Rev. Banking & Fin. L. 406 (2015). Its administrative proceeding practices have been the focus of both federal appeals  3See, e.g., Hill v. SEC, 825 F.3d 1236 (11th Cir. 2016); Timbervest v. SEC, No. 1:15-CV-2106-LMM, 2015 U.S. Dist. LEXIS 132082 (N.D. Ga. Aug. 4, 2015). and media scrutiny.  4Peter J. Henning, Constitutional Challenges to S.E.C.’s Use of In-House Judges, N.Y. Times (Oct. 5, 2015), https://www.nytimes.com/2015/10/06/business/dealbook/constitutional-challenges-to-secs-use-of-in-house-judges.html. Most concerning is the claim that the SEC’s ALJs are biased in favor of the agency.  5Jean Eaglesham, SEC Wins with In-House Judges, Wall St. J. (May 6, 2015, 10:30 PM), http://www.wsj.com/articles/sec-wins-with-in-house-judges-1430965803.

The appearance of impartiality at the SEC, a financial industry watchdog, is critical.  6See Office of Administrative Law Judges, U.S. Sec. & Exchange Commission, https://www.sec.gov/alj (last modified Jan. 26, 2017) (describing the role of ALJs as “independent adjudicators”). The SEC is unable to prosecute criminal charges, though it frequently refers criminal violations to the Department of Justice or appropriate state authorities.  7See Exchange Act of 1934, 15 U.S.C. § 78u(h)(9)(B) (2012); Office of Chief Counsel, U.S. Sec. & Exch. Comm’n, Enforcement Manual 84 (2016). The agency is permitted to seek sanctions such as cease-and-desist orders, bars from the securities industry, disgorgement, civil penalties, and suspension or revocation of registered securities or the registration of a broker, dealer, investment company, investment adviser, or financial statistical rating organizations.  8Office of Administrative Law Judges, supra note 6. The impact of SEC enforcement is therefore immense and felt nationwide.  9See id. In the 2016 fiscal year alone, SEC ALJs issued 170 decisions in administrative proceedings, resulting in orders for $12.4 million in disgorgement and $14.5 million in civil penalties.  10See id. From 2013 through 2016, the SEC charged more than 3,300 companies and 2,700 individuals in administrative and federal court proceedings, and obtained over $13.4 billion in sanctions.  11Press Release, U.S. Sec. & Exch. Comm’n, SEC Chair Mary Jo White Announces Departure Plans (Nov. 14, 2016), https://www.sec.gov/news/pressrelease/2016-238.html.

The current challenges to the SEC’s administrative proceedings include issues with the Appointments Clause,  12Alexander I. Platt, SEC Administrative Proceedings: Backlash and Reform, 71 Bus. Law. 1, 14 (2015). ALJs are appointed by human resources officials within the SEC—not by the Commission directly—and are not removable by the President, both of which would violate Article II § 2 of the Constitution if ALJs were found to be “inferior officers.” Id. at 14–15; U.S. Const. art. II, § 2, cl. 2 (“[B]ut the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.”). the Seventh Amendment,  13Platt, supra note 12, at 17. When a case is heard in an administrative proceeding as opposed to federal court, the defendant loses the opportunity to be heard by a jury, as juries are not used in administrative proceedings. Id.; see U.S. Const. amend. VII (“In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved . . . .”). Equal Protection,  14David Zaring, Enforcement Discretion at the SEC, 94 Tex. L. Rev. 1155, 1195 (2016) (“[T]hey are arguing that the unfair discrimination lies in the selection of their case for administrative proceedings, while comparable cases go to court.”). and Procedural Due Process.  15Id. at 1197 (challenging forum selection, the jurisdiction of administrative proceedings, and “agency officials act[ing] as judge, jury, and prosecutor”). However, this Comment focuses solely on one challenge: the potential bias of the SEC’s in-house ALJs.  16See Eaglesham, supra note 5. While the Supreme Court has declined to hear cases challenging the validity of ALJs under the Appointments Clause,  17Bebo v. SEC, 799 F.3d 765 (7th Cir. 2015), cert. denied, 136 S. Ct. 1500 (2016) (discussing removal issue); Brief of Petitioner, Pierce v. SEC, 136 S. Ct. 1713 (2016) (No. 15-901) (discussing appointment issue). the more disturbing claim is the possibility of a biased trier of fact.  18See infra notes 199–204 and accompanying text (discussing the negative effects of perceived bias). The SEC has been the center of media attention,  19See discussion infra Section II.A. but that does not exclude other agencies from scrutiny. While this Comment concentrates on the bias allegations at the SEC, all agencies bringing cases in administrative proceedings in front of in-house ALJs could face a similar problem.

Following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in 2010,  20Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. §§ 5301–5641 (2012). the SEC increased the number of cases it brought in administrative proceedings.  21Spunaugle, supra note 2, at 406 (“The SEC has taken advantage of this expanded authority by increasingly preferring to pursue enforcement actions in front of [administrative proceedings] rather than the district courts.”). In the 2014 fiscal year, the SEC brought four out of five enforcement actions in administrative proceedings rather than in federal courts.  22Eaglesham, supra note 5. Further, the SEC boasted a 90% win rate in administrative proceedings, and only a 69% win rate in federal court, from October 2010 through March 2015.  23Id. Several commentators have questioned the independence of the SEC’s ALJs given the significantly higher success rate in administrative proceedings.  24See Platt, supra note 12, at 9; Spunaugle, supra note 2, at 413; Zaring, supra note 14, at 1175.

While other agencies may also have biased ALJs,  25See infra Section II.A. public scrutiny has focused on the SEC.  26See, e.g., Eaglesham, supra note 5 (highlighting the SEC’s success rate in administrative proceedings); Kimberley A. Strassel, The SEC Plays Judge and Jury, Wall St. J. (Aug. 4, 2016, 7:30 PM), http://www.wsj.com/articles/the-sec-plays-judge-and-jury-1470353410 (criticizing the SEC’s trend towards administrative proceedings). All federal agencies use the same ALJ hiring process,  27Kent Barnett, Resolving the ALJ Quandary, 66 Vand. L. Rev. 797, 804–05 (2013). but only the SEC ALJs receive public scrutiny.  28See supra note 26 and accompanying text. This Comment argues that SEC ALJs are still biased, despite a neutral hiring process. This Comment further argues that this systemic bias should be removed by restructuring the ALJ program to function as a neutral pool of available ALJs employed by the Office of Personnel Management (OPM) instead of by particular agencies.

Additionally, the agency’s leadership remains up in the air.  29Current SEC Commissioners, U.S. Sec. & Exchange Commission, https://www.sec.gov/about/commissioner.shtml (last modified Sept. 17, 2013). Ordinarily, five commissioners, appointed by the President of the United States and confirmed by the Senate, lead the SEC.  30Id. To prevent the appearance of political bias, “no more than three [c]ommissioners may belong to the same political party.”  31Id. Currently, only three of the five seats are filled, with one commissioner’s term having expired in June 2017.  32Id. Because no individual was confirmed when Commissioner Kara Stein’s term ended in June 2017, she may continue to serve as a commissioner for up to eighteen months following the expiration of her term. Id. The last SEC Chair, Mary Jo White, stepped down from her position at the conclusion of President Obama’s second term.  33Press Release, U.S. Sec. & Exch. Comm’n, supra note 11. Thus, the time is now for reform at the SEC.

This Comment proceeds in four parts. Part I explains the role and hiring of ALJs following the passage of the Administrative Procedure Act (APA) to demonstrate the facial neutrality of the ALJ infrastructure across agencies. Part II examines the reasons behind the bias allegations at the SEC and evaluates the risk of bias. Part III argues for overhauling the infrastructure of the ALJ program by assessing four solutions. Finally, Part IV describes the implications that the reform would have on future agency adjudications.

I. Background of ALJs and the Hiring Process

This Part provides an overview of ALJs. Section A details the role of ALJs in federal agencies. Section B explains the selection process of ALJs as prescribed by the APA and the OPM, which applies to all federal agencies as a means of ensuring impartiality. Finally, section C lays out the selective certification process that was reformed to prevent ALJ biases. Despite the repeal of the selective certification process and maintenance of a neutral hiring process, bias continues to affect the SEC’s ALJs.

A. Role of ALJs in the Administrative System

The APA formally created the ALJ position in 1946 to “ensure fairness in administrative proceedings before Federal Government agencies.”  34Qualification Standard for Administrative Law Judge Positions, Off. of Personnel Mgmt., https://www.opm.gov/policy-data-oversight/classification-qualifications/general-schedule-qualification-standards/specialty-areas/administrative-law-judge-positions/ (last visited Oct. 1, 2016). In the APA, Congress carefully described the role of the ALJ to regulate the hiring process and power of the position.  35Jeffrey S. Lubbers, Federal Administrative Law Judges: A Focus on Our Invisible Judiciary, 33 Admin. L. Rev. 109, 111 (1981). Previously agencies used their own employees to oversee proceedings, and such proceedings were shrouded in vagueness.  36Id. While there were obvious favoritism issues when ALJs were former employees of an agency, agencies frequently ignored the decisions of ALJs and crafted their own with little or no given rationale.  37Id. The APA intended ALJs to be “impartial triers of fact.”  38 Qualification Standard for Administrative Law Judge Positions, supra note 34. See Lubbers, supra note 35, at 111. “An employee or agent engaged in the performance of investigative or prosecuting functions for an agency in a case may not, in that or a factually related case, participate or advise in the decision, recommended decision, or agency review . . . .”  39Administrative Procedure Act, 5 U.S.C. § 554(d) (2012). Therefore, to preserve neutrality, the APA intends that ALJs be insulated from agency employees in charge of enforcement actions.  40See Lubbers, supra note 35, at 111–12. Whether ALJs are actually insulated from the politics and pressure of their respective agencies is another matter. See infra Part II.

The duties of ALJs include “rul[ing] on preliminary motions, conduct[ing] pre-hearing conferences, issu[ing] subpoenas, conduct[ing] hearings . . . , review[ing] briefs, and prepar[ing] and issu[ing] decisions.”  41Qualification Standard for Administrative Law Judge Positions, supra note 34. Essentially, ALJs function as the agency counterpart to judges in a courtroom.  42Lubbers, supra note 35, at 110. While ALJs lack some of the independence and constitutional safeguards of Article III judges, they are still held to the same expectation of justice.  43Christopher B. McNeil, Similarities and Differences Between Judges in the Judicial Branch and the Executive Branch: The Further Evolution of Executive Adjudications Under the Administrative Central Panel, 18 J. Nat’l Ass’n Admin. L. Judges 1, 6 (1998) (quoting Barry v. Bowen, 825 F.2d 1324, 1330 (9th Cir. 1987)) (“[A]dministrative decision makers do not bear all the badges of independence that characterize an Article III judge, but they are held to the same standard of impartial decision making.”). The SEC describes ALJs as “independent adjudicators,”  44Office of Administrative Law Judges, supra note 6. though they are not held to the same ethical code as Article III judges.  45See Code of Conduct for United States Judges, U.S. Courts, http://www.uscourts.gov/judges-judgeships/code-conduct-united-states-judges (last modified Mar. 20, 2014) (excluding ALJs from the list of judges to whom the code applies). Article III judges are held to high ethical standards to preserve “the integrity and independence of the judiciary.”  46Id. The official commentary of the Code of Conduct further adds, “[V]iolation of this Code diminishes public confidence in the judiciary and injures our system of government under law.”  47Id. The mere appearance of prejudice or bias is prohibited in the federal judiciary.  48See Republican Party of Minn. v. White, 536 U.S. 765, 793 (2002) (Kennedy, J., concurring) (“The citizen’s respect for judgments depends in turn upon the issuing court’s absolute probity.”). ALJs functionally act as judges in hearing administrative proceedings; thus, they should be held to the same ethical standards prohibiting any bias or partiality.

ALJs can hear a number of cases on issues as varied as the agencies themselves. For example, ALJs hear cases on subject matters ranging from transportation to social security benefits to international trade.  49Lubbers, supra note 35, at 110. Despite hearing cases on niche areas of law, ALJs are not required to have any specialized knowledge before working for a particular agency.  50See Barnett, supra note 27, at 804 (describing ALJ employment requirements). The selective certification process served to allow agencies to seek out ALJs with specialized knowledge. See infra Section I.C. As of March 2016, 1,792 ALJs serve thirty federal agencies.  51ALJs by Agency, Off. of Personnel Mgmt., https://www.opm.gov/services-for-agencies/administrative-law-judges/#url=ALJs-by-Agency (last visited Oct. 1, 2016). Given the focus of constitutional backlash on the SEC, one might assume that the SEC has tens or even hundreds of these ALJs serving just its purposes. However, this could not be further from the truth; more than 1,500 ALJs serve the Social Security Administration (SSA), whereas only five serve the SEC.  52Id. For a breakdown of ALJs by agency, see the reproduction of the OPM’s chart in the Appendix.

Notably, the APA does not require that all agencies bring actions in administrative proceedings.  53Cf. 5 U.S.C. § 554(a) (2012) (detailing the application of the statute to administrative hearings but leaving open the possibility that a case be brought in court instead). For example, the SEC has the option to bring enforcement matters in either administrative proceedings or federal courts.  54U.S. Sec. & Exch. Comm’n, Division of Enforcement Approach to Forum Selection in Contested Actions 1, https://www.sec.gov/divisions/enforce/enforcement-approach-forum-selection-contested-actions.pdf (last visited Oct. 1, 2016) [hereinafter SEC, Forum Selection]. A guide published by the SEC’s Division of Enforcement details the agency’s approach to forum selection.  55Id. While the agency does not adhere to a strict formula, the Division of Enforcement considers a number of factors when selecting a forum.  56Id. No one factor is dispositive, but the guide notes, “Not all factors will apply in every case and, in any particular case, some factors may deserve more weight than others, or more weight than they might in another case. Indeed, in some circumstances, a single factor may be sufficiently important to lead to a decision to recommend a particular forum.” Id. Thus, defendants have no ability to predict in which forum the SEC will pursue a case. These include (1) “[t]he availability of the desired claims, legal theories, and forms of relief in each forum”; (2) “[w]hether any charged party is a registered entity or an individual associated with a registered entity”; (3) “[t]he cost-, resource-, and time-effectiveness of litigation in each forum”; and (4) “[f]air, consistent, and effective resolution of securities law issues and matters.”  57Id. The SEC notes that one advantage of administrative proceedings is the expertise of the ALJs, who become intimately familiar with the workings of the securities industry and regulations.  58Id. (“[ALJs] . . . develop extensive knowledge and experience concerning the federal securities laws and complex or technical securities industry practices or products.”).

B. Neutral ALJ Hiring Process Under the OPM

The APA itself gives little guidance as to the hiring of ALJs.  59See 5 U.S.C. § 3105 (2012). Section 3105, appropriately titled “Appointment of administrative law judges,” merely states, “Each agency shall appoint as many administrative law judges as are necessary for proceedings required to be conducted in accordance with sections 556 and 557 of this title.”  60Id. Therefore the SEC is able to appoint as many or as few ALJs as it would like, dependent on its needs.  61Likewise, ALJs are also subject to agency- or office-wide reductions in force. Vanessa K. Burrows, Cong. Research Serv., RL34607, Administrative Law Judges: An Overview 9 (2010). Further, the statute notes, “Administrative law judges shall be assigned to cases in rotation so far as practicable, and may not perform duties inconsistent with their duties and responsibilities as administrative law judges,”  625 U.S.C. § 3105. although this does little to clarify how ALJs are to be appointed.

The APA authorizes the OPM (formerly the U.S. Civil Service Commission)  63Lubbers, supra note 35, at 112. to set guidelines and standards for hiring ALJs.  645 U.S.C. § 3344 (2012). Agencies are restricted to considering a list of candidates ranked by the OPM and the “rule of three.”  65Lubbers, supra note 35, at 115. The “rule of three” is a statutory requirement that agencies must consider at least three names per vacancy.  665 U.S.C. § 3317(a) (2012); Lubbers, supra note 35, at 115. Additionally, the agency must select an ALJ from the top three ranked eligible applicants.  675 U.S.C. § 3318 (2012); Lubbers, supra note 35, at 115 (“The agency is then obliged to make its selection from those three who have the highest scores and are actually available for appointment.”).

Because the APA leaves much to be determined in regard to hiring ALJs, the OPM has the power to craft the relevant hiring standards and procedure.  68Lubbers, supra note 35, at 112 (“[OPM] has been exclusively responsible for the initial examination, certification for selection, and compensation of ALJs.”). Qualification, determined entirely by the OPM, consists of three components: licensure, experience, and a written examination.  69Qualification Standard for Administrative Law Judge Positions, supra note 34. The first, licensure, is perhaps the easiest standard to pass, as the applicant simply must be licensed to practice law in a state, the District of Columbia, Puerto Rico, or any territorial court under the U.S. Constitution.  70Id. Second, to satisfy the experience requirement, “[a]pplicants must have a full seven (7) years of experience as a licensed attorney preparing for, participating in, and/or reviewing formal hearings or trials involving litigation and/or administrative law at the Federal, State, or local level.”  71Id. Third, the OPM administers an examination to judge an applicant’s knowledge, skills, and ability.  72Id. Beyond the formal tripartite system, a number of softer factors are also incorporated into the final composite score, which one might normally expect when applying for a job. For example, the candidate must allow the OPM to send “vouchers,” or inquiries, to twenty individuals with “personal knowledge of the applicant’s experience, professional abilities, and qualifications”—the equivalent to a list of references.  73Lubbers, supra note 35, at 114.

Following the examination, each applicant is given a composite score between zero and 100.  74Id. at 112. Applicants who score eighty or above are then considered eligible candidates.  75Id. The OPM then ranks eligible candidates by score, which is available for review by hiring agencies.  76Id. There are two separate registries, one for GS-16 grade level and one for GS-15 level. Id. Most agencies employ GS-16 level ALJs, but four—the SSA; the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF); the Department of Housing and Urban Development; and the U.S. Coast Guard—employ GS-15 level ALJs. Id. at 112–13, 113 n. 19. Once the hiring agencies receive the rankings of the ALJ candidate scores, the individual agencies may make appointments from this list subject to the rule of three.  77See id. at 115; 5 U.S.C. § 3317(a) (2012). The hiring procedures prescribed by the OPM are objective and calibrated to find the best candidates for ALJ positions.  78See Qualification Standard for Administrative Law Judge Positions, supra note 34. However, a neutral hiring process is not enough to prevent bias when ALJs are placed at and employed by a specific agency.  79See infra Part II.

C. Former Selective Certification Process

Initially, agencies were permitted to circumvent the rankings set by the OPM and the rule of three by engaging in selective certification.  80Barnett, supra note 27, at 805. If an agency gained the OPM’s approval by showing a necessity, the agency could appoint ALJs despite their eligibility ranking.  81Lubbers, supra note 35, at 117. Many agencies would prove necessity by expressing a need for an ALJ who has prior experience or specialized knowledge in the relevant field, such as communications for the Federal Communications Commission.  82Id. From the 1960s through the 1980s,  83Barnett, supra note 27, at 805. eleven agencies engaged in selective certification, including the SEC.  84Lubbers, supra note 35, at 117–18. Other agencies included the Department of Agriculture, the Civil Aeronautics Board, the Federal Communications Commission, the Federal Energy Regulatory Commission, the Department of Labor, the Interstate Commerce Commission, the National Labor Relations Board, ATF, SSA, and the U.S. Coast Guard. Id.

However, selective certification was an obvious avenue for agencies to acquire biased ALJs. A 1974 study estimated that 82% of ALJs acquired their jobs using selective certification, rather than the traditional hiring process set and managed by the OPM.  85Id. at 118. A 1969 study found that fifty-two of sixty-six ALJs hired through selective certification were former employees of the respective agencies, as many agencies found that their own staff attorneys possessed the requisite specialized knowledge.  86Id.

The OPM ended selective certification in 1984 after criticism that the ALJs hired through selective certification were biased in favor of their agencies.  87Barnett, supra note 27, at 805. The OPM’s official announcement to end selective certification seemed to leave open a gap: “Where agencies can justify by job analysis that special qualifications enhance performance on the job, agencies may give priority consideration in filling vacant positions to applicants with special qualifications.”  88Burrows, supra note 61, at 6 (citing Office of Personnel Mgmt., Examination Announcement No. 318 at 8 (1984)). Several agencies have appealed to the OPM and Congress under this language for a waiver to return to selective certification.  89Barnett, supra note 27, at 805. However, such attempts have been unsuccessful.  90Burrows, supra note 61, at 6. Thus far, the OPM has interpreted the language only to mean that when comparing two applicants with equal scores following the ALJ qualification process, an agency may choose the applicant with relevant industry experience.  91Id. The American Bar Association supported the OPM in denying agency requests to use selective certification.  92Id. By closing the selective certification loophole, the OPM sought to end ALJ bias.  93See Barnett, supra note 27, at 805 (noting that the OPM ended selective certification in response to charges of ALJ bias). However, given that claims of biased ALJs continue to crop up,  94Eaglesham, supra note 5. ending selective certification did not solve the problem.

II. Reasons for ALJ Bias

While the ALJ hiring process is controlled by the OPM and is identical for each agency,  95See supra Section I.B. the claims of bias against the SEC’s ALJs seem to be front-page news while claims against other agencies take a back seat.  96See, e.g., Eaglesham, supra note 5 (suggesting SEC ALJ bias); Henning, supra note 4 (describing constitutional challenges to the SEC’s ALJ program); Daniel R. Walfish, The Real Problem with SEC Administrative Proceedings, and How to Fix It, Forbes (July 20, 2015), https://www.forbes.com/sites/danielfisher/2015/07/20/the-real-problem-with-sec-administrative-proceedings-and-how-to-fix-it/#5b88c4bf2e01 (concluding that the real problem was with the SEC’s appellate process, but still noting the issue of potentially biased ALJs). Because all agencies are bound by the same hiring rules, in theory they have equal chances of acquiring biased ALJs. However, the SEC remains in the crosshairs of the Wall Street Journal, the New York Times, and Forbes, while other agencies slip under the radar.  97Cf. Eaglesham, supra note 5; Henning, supra note 4; Walfish, supra note 96. Perhaps other agencies just do not have biased ALJs and this problem is unique to the SEC.

This Part analyzes the reasons for ALJ bias at the SEC. Section A addresses the potentially deceptive assumption that only the SEC faces such allegations, though the media’s focus on the SEC demonstrates a lack of public confidence in the agency’s impartiality during administrative proceedings. Section B surveys recent trends in SEC enforcement actions indicating a heavy shift toward administrative proceedings where the SEC could receive preferential treatment. Section C analyzes how the employee-employer relationship between the ALJs and the SEC increases the opportunity for bias.

A. Are the SEC’s ALJs More Biased? A Deceptive Assumption

Due to the high-profile nature of the subject matter and the deep pockets of the parties to SEC administrative proceedings, major news outlets naturally report on the alleged bias of SEC ALJs over those of other agencies, such as the SSA or the Environmental Protection Agency.  98See Eaglesham, supra note 5; Strassel, supra note 26. Large amounts of money are at stake in SEC enforcement actions. Office of Administrative Law Judges, supra note 6 (“For fiscal year 2016, [ALJs] . . . ordered approximately $12.4 million in disgorgement and approximately $14.5 million in civil penalties.”). The actions frequently involve well-known business organizations and individuals. See, e.g., Aruna Viswanatha et al., Golfer Phil Mickelson Sued, Two Others Charged in Insider-Trading Case, Wall St. J. (May 19, 2016, 7:49 PM), http://www.wsj.com/articles/former-dean-foods-chairman-thomas-davis-charged-with-insider-trading-143663773 (detailing renowned golfer Phil Mickelson’s involvement in an insider trading case); Press Release, U.S. Sec. & Exch. Comm’n, Merrill Lynch to Pay $415 Million for Misusing Customer Cash and Putting Customer Securities at Risk (Jun. 23, 2016), https://www.sec.gov/news/pressrelease/2016-128.html; Press Release, U.S. Sec. & Exch. Comm’n, SEC Charges Bank of America with Securities Laws Violations in Connection with Regulatory Capital Overstatements (Sept. 29, 2014), https://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543065483. Other agencies’ ALJs may face similar bias allegations, yet the media only fixates on such allegations against the SEC, thus making the allegations against other agencies harder to follow.  99See Eaglesham, supra note 5; Henning, supra note 4; Walfish, supra note 96. For example, the SSA was also accused of having biased ALJs in disability hearings, but these allegations were only reported outside of major news outlets.  100See, e.g., Scott Elkind, The War on So-Called “Outlier” Administrative Law Judges, Am. Ass’n for Just.: Soc. Security Disability L. Newsl., https://www.justice.org/sections/newsletters/articles/war-on-so-called-“outlier”-administrative-law-judges (last visited Oct. 29, 2016); Press Release, Gibson Dunn, Historic Class Action Settlement Provides New Hearings and Protections to Thousands of Disabled New Yorkers Wrongly Denied Social Security Benefits (Jan. 14, 2013), http://www.gibsondunn.com/news/Pages/HistoricClassActionSettlementProvidesNewHearingsandProtections.aspx; New SSA Ruling Addresses ALJ Bias, LaPorte L. Firm (Feb. 21, 2013), http://laportelawfirm.com/2013/02/21/new-ssa-ruling-addresses-alj-bias/. Allegations of bias at the SEC receive attention due to (1) recent cases challenging the SEC, (2) media attention on the SEC, (3) the SEC Office of Inspector General’s (OIG) investigation into the agency’s ALJs, and (4) other agencies already taking steps to reduce bias in ALJs.

Recent cases have amplified the focus of media attention on the SEC by vocalizing these bias allegations. While many cases have challenged the constitutionality of the SEC’s administrative proceedings, the theories of those challenges are varied and diverse.  101See Hill v. SEC, 825 F.3d 1236, 1237 (11th Cir. 2016); Tilton v. SEC, 824 F.3d 276, 278–79 (2d Cir. 2016), cert. denied, 137 S. Ct. 2187 (2017); Bebo v. SEC, 799 F.3d 765, 767 (7th Cir. 2015), cert. denied, 136 S. Ct. 1500 (2016). Despite the many constitutional challenges to date, no court has heard a due process challenge regarding the impartiality of the SEC’s ALJs.  102Cf. Tumey v. Ohio, 273 U.S. 510, 535 (1927) (finding a right to an impartial judge). However, Timbervest, LLC v. SEC  103No. 1:15-CV-2106-LMM, 2015 U.S. Dist. LEXIS 132082 (N.D. Ga. Aug. 4, 2015) (challenging the constitutionality of the SEC’s ALJ appointment procedures). led directly to the publication of the Wall Street Journal’s article “SEC Wins with In-House Judges,” which critiqued the SEC ALJs’ ability to be impartial.  104Eaglesham, supra note 5.

Among other things, the plaintiffs in Timbervest challenged the constitutionality of the SEC’s administrative proceedings with regard to the appointment and removal processes for ALJs.  105Timbervest, 2015 U.S. Dist. LEXIS 132082, at *1–2. While the plaintiffs’ argument in federal court focused on the mechanics of hiring and removing ALJs, one of their arguments when appealing to the SEC Commissioners hinged on SEC ALJs being biased in favor of the agency.  106See Order Requesting Additional Briefing, Investment Advisers Act Release No. 4166, Investment Company Act Release No. 31749, 2015 SEC LEXIS 3294 (Aug. 11, 2015). Administrative proceedings are directly appealable only to the SEC Commissioners. Hill, 825 F.3d at 1238. The SEC’s final order may then be appealed to federal district court. Id. at 1237. These bias allegations were reiterated in the district court opinion, stating: “Based on [‘SEC Wins with In-House Judges’], Plaintiffs requested that the SEC produce evidence relevant to the former ALJ’s allegations because those statements were relevant to Plaintiffs’ due process, impartiality claim which was pending before the [SEC].”  107Timbervest, 2015 U.S. Dist. LEXIS 132082, at *12.

While the Timbervest case added fuel to the fire of allegations of unconstitutionality in administrative proceedings, the Wall Street Journal lit the flame.  108See Eaglesham, supra note 5. In the “SEC Wins with In-House Judges” article, former SEC ALJ Lillian McEwen stated that she was pressured by Chief Judge Brenda Murray to rule for the SEC more often.  109Id. McEwen asserted that Murray “questioned [her] loyalty to the SEC” because McEwen often ruled in favor of the defendants.  110Id. Additionally, McEwen explained that SEC ALJs were to view defendants as guilty until proven innocent, contrary to the most basic premise of the American judicial system.  111See id. (“[T]he burden was on the people who were accused to show that they didn’t do what the agency said they did.”).

The Timbervest case mentioned only one of several accusations of SEC ALJ bias in the media.  112Timbervest, 2015 U.S. Dist. LEXIS 132082, at *12. Investor Mark Cuban has criticized the SEC’s administrative proceeding process frequently and publicly, as noted in a recent interview with the Washington Post that highlighted claims of bias.  113Renae Merle, Cuban on His Crusade Against the SEC—and When He’ll Be Satisfied, Wash. Post (Mar. 17, 2016), https://www.washingtonpost.com/business/economy/cuban-on-his-crusade-against-the-sec—and-when-hell-be-satisfied/2016/03/17/619d9e9a-ebae-11e5-b0fd-073d5930a7b7_story.html (“Instead of sending the cases to federal court, the SEC puts them before an [ALJ] whom defense attorneys have complained could be biased in favor of the agency.”). A different article by the Wall Street Journal also questioned the impartiality of ALJs, noting, “These judges are hired by the SEC and sit on the [C]ommission’s payroll.”  114Strassel, supra note 26. The article notes another high-profile case challenging the constitutionality of the SEC’s ALJs, Tilton v. SEC115Tilton v. SEC, 824 F.3d 276 (2d Cir. 2016), cert. denied, 137 S. Ct. 2187 (2017); Strassel, supra note 26. In the administrative proceeding prior to Tilton, the defendant requested a December trial date upon a dramatic change in counsel in June.  116Strassel, supra note 26. The ALJ, Carol Foelak, ignored the defendant’s request twice—first scheduling the trial for September, and then moving it to October.  117Id. The ALJ warned “against filing any further ‘frivolous’ motions.”  118Id. The article concluded the “SEC gets to sit as prosecutor, judge and jury—and no surprise that the agency loves this setup.”  119Id.

Following the media firestorm resulting from Timbervest and the associated Wall Street Journal article, the OIG launched an investigation into the bias of ALJs at the SEC.  120Office of Inspector Gen., U.S. Sec. & Exch. Comm’n, Report of Investigation: Case # 15-ALJ-0482-1 1 (2016), https://www.sec.gov/oig/reportspubs/Final-Report-of-Investigation.pdf. Then-SEC Chair Mary Jo White requested the investigation, not just into McEwen’s statements, but into bias allegations against all SEC ALJs as a whole.  121Id. at 8. The OIG ultimately concluded that there was no evidence of bias, apart from “systemic factors” such as following SEC precedent and rules of practice.  122Id. at 1. See Michael Dvorak, Note, SEC Administrative Proceedings and Equal Protection “Class of One” Challenges: Evaluating Concerns About SEC Forum Choices, 2015 Colum. Bus. L. Rev. 1195, 1199 (2015), for a discussion of how the SEC’s rules of practice unduly burden defendants. Despite White’s request, the OIG investigation only focused upon McEwen’s claim that Chief Judge Murray told or in some way pressured ALJs to rule for the SEC.  123Office of Inspector Gen., supra note 120, at 1. However, the OIG merely interviewed the ALJs by asking them if they were ever directly told how to rule.  124See id. at 9–14. This devolved into a game of “he said, she said,” pitting McEwen against the other ALJs.  125See id. Unsurprisingly, when asked if they were biased, the other ALJs rejected the allegations.  126Id. at 10–14.

While the OIG report did not focus on any sources of implicit bias,  127Id. at 5 n.1 (“[T]he allegations of bias or improper influence investigated were limited to instructions, directives or orders on how to rule on motions, decide questions of facts or law, or make other dispositions of any particular administrative proceeding given by the Chief ALJ to the other ALJs without regard to the evidence or applicable legal authority.”). the scope of the investigation did include the review of e-mails dated between 2003 and 2015.  128Id. at 6–7. One e-mail from Chief Judge Murray in 2014 noted, “[A] securities lawyer said that one of the judge’s [sic] in the office is biased against private companies and he said he would never rule against the government. It was confirmed by another attorney at the reception.”  129Id. at 15. When Murray confronted the accused ALJ, who goes unnamed in the report, the ALJ denied the allegation.  130Id. at 16.

When the OIG issued its interim report on the matter, the Timbervest respondents were so frustrated with the investigation’s lack of progress that they filed a supplemental brief requesting an opportunity to submit additional evidence of bias.  131Respondents’ Supplemental Brief in Further Support of Motion to Allow Submission of Additional Evidence & Leave to Adduce Additional Evidence at 1, Timbervest, LLC, Administrative Proceeding File No. 3-15519 (June 4, 2015) [hereinafter Respondents’ Supplemental Brief]. Ultimately, their chief criticism of the OIG—that its failure to address the “most significant evidence of bias” rendered the investigation “wholly deficient”—would remain unresolved.  132Id. at 4–5. This critical evidence was “the overwhelming success rate of the Division of Enforcement in administrative proceedings and ALJ Elliot’s unbroken record of ruling in favor of the Division.”  133Id. at 4. As of the Timbervest case, the SEC won in 96% of administrative proceedings compared to 67% of federal court cases.  134Id. at 5. Further, Judge Elliot ruled in favor of the SEC 100% of the time.  135Id. The respondents in Timbervest were particularly interested in Judge Elliot, as he made the initial ruling against the respondents.  136Office of Inspector Gen., supra note 120, at 7. When the SEC requested that Judge Elliot submit an affidavit regarding the bias allegations, he declined.  137Id. While Judge Elliot claimed he had “multiple reasons why [he] decided not to provide a response” to the affidavit, he did not share any of those reasons with the OIG.  138Id. at 11 (alteration in original). Then-Chair White requested the OIG investigate the bias allegations generally, not just those regarding Judge McEwen.  139Id. at 8 (“Chair Mary Jo White requested an OIG investigation of the alleged bias issue because the identified concerns could impact all ALJs and the SEC administrative proceedings.”). However, the final OIG report glossed over potential “systemic factors” leading to bias and only focused on the validity of the statements made by Judge McEwen.  140See id. at 5–7 (“Specifically, the OIG investigated allegations that were attributed to McEwen and included in a May 6, 2015 WSJ article . . . .”).

Although the OIG concluded there was no ALJ bias on behalf of the SEC, the public was not satisfied with the answer. When asked whether he was comforted by the OIG’s findings, Mark Cuban, who won a high-profile case against the SEC in 2013 and has been outspoken with his critiques of the agency, responded simply, “That’s laughable. Why not look to impartial analysis?”  141Merle, supra note 113. The journalist who interviewed Cuban also appeared unconvinced. See id. (“Instead of sending the cases to federal court, the SEC puts them before an [ALJ] whom defense attorneys have complained could be biased in favor of the agency.”). Likewise, McEwen commented, “[Murray] wins . . . . And the SEC will continue to do what it does.”  142Suzanne Barlyn, Watchdog Clears U.S. SEC’s In-House Judges of Bias Allegations, Reuters (Feb. 16, 2016, 4:57 PM), http://www.reuters.com/article/us-sec-court-bias-idUSKCN0VP2OL.

Further, the focus on the SEC may not be due to something the SEC has done, but instead what it has not done. At least one other agency, the SSA, has already addressed bias concerns. In January 2013, disability claimants and the SSA reached a settlement.  143Press Release, Gibson Dunn, supra note 100. Thousands of claimants sued the SSA on the grounds that five of its ALJs in Queens, New York were biased against the claimants.  144Id. The five accused ALJs reportedly ignored the law and evidence provided, “bullied” claimants, and disregarded instructions from higher courts, resulting in more than 80% of their cases being reversed on appeal.  145Id. The settlement agreement provided new hearings for all claimants who had gone before those ALJs from 2008 forward, “comprehensive retraining” for the five ALJs, and a new monitoring system for SSA claims to prevent future bias.  146Id.

Further, the SSA issued a new rule just after the settlement on January 29, 2013, increasing the review of ALJ decisions to identify and cure bias.  147SSR 13-1p, 78 Fed. Reg. 6168 (Jan. 29, 2013). The rule creates three different avenues of review or redress.  148Id. at 6168–69. First, the SSA Appeals Council may review any ALJ ruling, either by its own initiative or by complaint of a party.  149Id. Second, ODAR Division Quality Service investigates allegations of ALJ bias or other misconduct proffered by non-parties, such as witnesses, claimant representatives, and federal courts.  150Id. at 6170; New SSA Ruling Addresses ALJ Bias, supra note 100. Third, a party may file a civil rights complaint if he believes the bias is based upon a protected class.  151SSR 13-1p, 78 Fed. Reg. 6168, 6169 (Jan. 29, 2013); New SSA Ruling Addresses ALJ Bias, supra note 100. Such reforms may not have the same effect on the SEC due to the different natures of the two agencies.  152Compare About Us, Soc. Security Admin., https://www.ssa.gov/agency.html (“We pay benefits to over 60 million people including retirees, children, widows, and widowers.”), with What We Do, U.S. Sec. & Exchange Commission, https://www.sec.gov/Article/whatwedo.html (last updated June 10, 2013) (“The SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds.”). However, the SEC lags behind in reforming its administrative proceeding structure despite complaints, while the SSA took swift action to resolve the matter.  153Compare supra notes 120–42 (describing the SEC’s response to bias allegations), with supra notes 143–51 (describing the SSA’s response).

B. Recent SEC Enforcement Trends

The SEC’s enforcement trends provide both qualitative and quantitative approaches to examining ALJ bias. At the most basic level, the SEC’s patterns in forum selection may indicate a goal of putting more cases before ALJs in the hopes that those ALJs will view the SEC more favorably than would an Article III judge.  154Platt, supra note 12, at 9.

The Dodd-Frank Act induced a shift in SEC enforcement actions away from federal court and toward administrative proceedings.  155See Spunaugle, supra note 2, at 410 (“The SEC’s use of administrative proceedings has rapidly increased in the years since Dodd-Frank’s passage.”). The Dodd-Frank Act expanded the scope of the SEC’s power and authorized new sanctions in administrative proceedings, such as a bar from the entire securities industry.  156Platt, supra note 12, at 7. The act allowed the SEC to sue both registered and unregistered securities entities and individuals in administrative proceedings.  157See Giles D. Beal, IV, Judge, Jury and Executioner: SEC Administrative Law Judges Post-Dodd Frank, 20 N.C. Banking Inst. 413, 417 (2016) (“Before Dodd-Frank, the SEC could only seek monetary penalties . . . in front of ALJs if the individual or entity was registered with the SEC.”). Further, the Dodd-Frank Act permitted disgorgement penalties in administrative proceedings, which could amount to millions of dollars, whereas previously fines were limited to much smaller civil penalties.  158Id. at 424–25. Disgorgement is “the repayment of illegally gained profits (or avoided losses) for distribution to harmed investors whenever feasible.” Id. at 425. While the SEC had previously reserved administrative proceedings for more basic legal issues, now it files more complex cases at home.  159Jean Eaglesham, SEC Is Steering More Trials to Judges It Appoints, Wall St. J., http://www.wsj.com/articles/sec-is-steering-more-trials-to-judges-it-appoints-1413849590 (last updated Oct. 21, 2014, 9:40 AM).

Given the procedural and punitive advantages for the agency in administrative proceedings resulting from the Dodd-Frank Act, the SEC has since increased the amount of cases it brings in administrative proceedings as opposed to in federal courts.  160Platt, supra note 12, at 8. Prior to the passage of the Dodd-Frank Act in 2010, the SEC brought approximately 60% of its cases in administrative proceedings.  161Beal, supra note 157, at 417. Since the act, the SEC now brings more than 80% of its cases in administrative proceedings.  162Id. A broader look at the SEC’s forum selection demonstrates that the popularity of administrative proceedings has increased over time in correspondence with similar acts broadening the agency’s enforcement powers. Platt, supra note 12, at 9–10. From 2010 through 2015, the number of administrative proceedings brought by the SEC increased from roughly 375 to over 500. Id. at 10. However, the jump following the Dodd-Frank Act represents the highest proportion of actions going to administrative proceedings to date. See id. This jump is likely the largest as the Dodd-Frank Act provided the SEC with two enforcement powers previously unavailable in either forum. See id. at 7. To keep up with the growing administrative proceeding docket, the SEC hired two additional ALJs in 2014, increasing the total from three to five ALJs.  163Spunaugle, supra note 2, at 413. Kara Brockmeyer, head of the SEC’s anti-foreign-corruption enforcement unit, stated that the shift toward administrative proceedings is “the new normal.”  164Eaglesham, supra note 159.

While the trend toward administrative proceedings itself can only imply that the SEC believes it will be more successful in that forum, the difference in win percentages between the forums solidifies the implication. In the 2011 fiscal year, the SEC won in 88% of administrative proceedings and only 63% of federal court cases.  165Spunaugle, supra note 2, at 412. From September 2011 through September 2012, the SEC won in 100% of administrative proceedings, but only 67% of federal court cases.  166Eaglesham, supra note 159. From September 2012 through September 2013, the SEC won in 90% of administrative proceedings, but only 75% of federal court cases.  167Id. From September 2013 to September 2014, the SEC won 100% of administrative proceedings, but only 61% of federal court cases.  168Spunaugle, supra note 2, at 412. As of 2015, the SEC prevailed in 90% of administrative proceedings, but only 69% of federal district court cases.  169Beal, supra note 157, at 417–18. Several of the SEC’s losses in federal court have been high-profile cases, such as the action against Mark Cuban, which could further tempt the agency to shift toward administrative proceedings.  170Platt, supra note 12, at 9.

Contrary to the OIG’s determination that the SEC’s ALJs were not biased, the success rates of the SEC before individual ALJs and other evidence suggest that the ALJs are biased. The SEC won 85% of administrative proceedings before Judge Foelak and 87% of administrative proceedings before Chief Judge Murray.  171Eaglesham, supra note 5. Judge Elliot ruled for the SEC 100% of the time.  172Id.

With a recent change in executive administration and the future of the Dodd-Frank Act pending,  173Ryan Tracy, Donald Trump’s Transition Team: We Will “Dismantle” Dodd-Frank, Wall St. J., https://www.wsj.com/articles/donald-trumps-transition-team-we-will-dismantle-dodd-frank-1478800611 (last updated Nov. 10, 2016, 6:29 PM). it is imperative to note that the issue of bias does not depend upon the Dodd-Frank Act.  174See generally Robin J. Artz et al., Advancing the Judicial Independence and Efficiency of the Administrative Judiciary: A Report to the President-Elect of the United States, 29 J. Nat’l Ass’n Admin. L. Judiciary 93 (2009) (providing guidelines for avoiding ALJ bias pre-Dodd Frank Act). Many of the changes promised by President Trump involve loosening current financial regulations and embracing big banks, but the SEC will continue to enforce the remaining financial regulations. Stephen J. Lubben, Trump’s Presidency Raises Questions on the Future of Wall St. Regulation, N.Y. Times (Nov. 14, 2016), https://www.nytimes.com/2016/11/15/business/dealbook/trumps-presidency-raises-questions-on-the-future-of-wall-st-regulation.html?_r=0; Ryan Tracy and Michael C. Bender, Trump Signs Actions to Begin Scaling Back Dodd-Frank, Wall St. J., https://www.wsj.com/articles/trump-signs-executive-actions-toward-scaling-back-dodd-frank-financial-regulation-1486148274 (last updated Feb. 3, 2017, 2:47 PM). The SEC has certainly increased the amount of cases it brings in administrative proceedings following the passage of the Dodd-Frank Act,  175Platt, supra note 12, at 8. but the bias problem was not created by the act, and it will continue to exist even if the act is repealed or dismantled. The APA, not the Dodd-Frank Act, authorized administrative proceedings.  1765 U.S.C. § 554 (2012). The Dodd-Frank Act merely provided the statistics to highlight the extent of the bias problem.  177See Eaglesham, supra note 159 (noting the SEC’s increasing use of administrative proceedings since the passage of Dodd-Frank).

C. Employee-Employer Relationship: The ALJ-SEC Interplay

Because each ALJ is technically an employee of the agency that he serves, the logistical nature of this setup lends itself to the potential for bias. The areas in question are (1) payroll, (2) office location, and (3) “duty” to please the SEC Commissioners.

First, SEC ALJs are paid from the SEC’s payroll, not from the OPM’s payroll.  178Eaglesham, supra note 5. The OPM oversees the hiring process for ALJs, which may not be delegated to any other agency.  179 Examining Due Process in Administrative Hearings: Statement Before the Subcomm. on Regulatory Affairs and Fed. Mgmt. of the S. Comm. on Homeland Sec. and Governmental Affairs, 114th Cong. 2 (2016) (statement of Joseph Kennedy, Associate Director of Human Resources Solutions, U.S. Office of Personnel Management). Beyond this, the ALJs hired by the SEC are technically employees of the SEC, as they are hired by the agency following the OPM’s guidelines.  180Id. at 3. The OPM sets three levels of ALJ salary and assigns each ALJ to a salary level.  181Pay Administration, Off. of Personnel Mgmt., https://www.opm.gov/policy-data-oversight/pay-leave/pay-administration/fact-sheets/administrative-law-judge-pay-system/ (last visited Dec. 26, 2016). Pay may be lowered for “good cause” following a disciplinary proceeding or upon request by an ALJ. Burrows, supra note 61, at 3. While this may seem insidious, the OPM added this option due to frequent ALJ requests for less responsibility. Id. Given that the SEC itself is not setting the salary, it would appear that ALJs could not be biased for the agency to maintain or increase their salaries. Agencies are not permitted to give awards or performance reviews to ALJs.  182Burrows, supra note 61, at 7. However, the SEC determines “hours of duty, travel, office space and procedures, and staff assistance.”  183U.S. Gov’t Accountability Off., GAO/GGD-96-27, Administrative Law Judges: Comparison of SEC and CFTC Programs 11 (1995). While this should be relatively straightforward, one of Judge McEwen’s complaints regarding the pressures on her as an SEC ALJ resulted from the SEC’s refusal to provide an assistant and refusal to exceed the per diem rate for reimbursing travel expenditures from one of her hearings in New York City.  184Office of the Inspector Gen., U.S. Sec. & Exch. Comm’n, supra note 120, at 9. Locality adjustments are typically respected by the federal agencies, at least when determining salaries. Pay Administration, supra note 181.

Second, the SEC oversees the ALJs’ office locations.  185U.S. Gov’t Accountability Office, supra note 183, at 11. As employees of the agency, naturally the office location would tend to be within the agency’s office building. In the case of the SEC, the ALJs’ offices are located on the second floor of the SEC headquarters in Washington, D.C.  186Eaglesham, supra note 5. The ALJs’ offices are not isolated, but on the same floor as the SEC press office and health club.  187Id. By the very nature of being located inside the SEC building and sharing a floor with other SEC employees, including a staff gym to which all employees have access, ALJs spend much of their time near other SEC employees. The very proximity of the ALJs’ offices to the rest of the SEC allows for ALJs to come into contact with other SEC staff members, including the potential for run-ins with enforcement attorneys or the Commissioners.

Third, due to the structure of the ALJs as an office within the SEC, ALJs have a “duty” to please the Commissioners and other officials at the SEC. The agency has the power to remove or suspend ALJs.  1885 U.S.C. § 7521 (2012); Burrows, supra note 61, at 8. Removal is subject to “good cause,” though Congress did not define what constitutes “good cause.”  189Burrows, supra note 61, at 8. The Merit Systems Protection Board (MSPB) has the ultimate say over whether a reason for dismissal was “good cause.”  190See id. So far, sexually harassing employees, refusing to travel or to schedule cases requiring travel, refusing to deliver legal documents, disregarding the safety of others, failing to meet financial obligations, misusing office mail supplies, violating agency rules, being unable to work due to disability, refusing to set hearing dates, and “a high rate of significant adjudicatory errors” have been “good cause” rationales. Id. Given that a third party must review the removal, it is unlikely that the SEC would be able to fire an ALJ simply for refusing to rule for the SEC.  191See id. at 8–9. However, knowledge that the agency ultimately retains the power to remove ALJs certainly puts pressure on the ALJs to satisfy the Commissioners.

The ALJs’ decisions are subject to de novo review on appeal by the Commissioners, leading to further pressure to please the heads of the agency.  192Office of Administrative Law Judges, supra note 6. Under de novo review, the Commissioners are not bound by the findings of the ALJs, which raises a secondary issue regarding what the value of an ALJ is if the Commissioners can later go in and conduct their own decision. Lorenzo, Securities Act Release No. 9762, Exchange Act Release No. 74836 at 17, 2015 WL 1927763 (April 29, 2015) (“Any alleged deficiencies in the [ALJ]’s analysis are of no consequence because our review is de novo; the violations we find and the sanctions we impose are based on our own independent review of the record.”). The Commissioners may “affirm, reverse, modify, set aside, or remand for further proceedings,” similar to an appellate judge.  193Office of Administrative Law Judges, supra note 6. Decisions by the Commissioners are further appealable to a U.S. Court of Appeals. Id. Judge Elliot has insisted that there is no pressure from the Commissioners to rule for the SEC, stating, “The SEC can’t fire us, decide our pay or grade our performance. . . . There’s nothing the SEC can do to influence us and they don’t try to.”  194Jean Eaglesham, Fairness of SEC Judges Is in Spotlight, Wall St. J. (Nov. 22, 2015, 9:25 PM), http://www.wsj.com/articles/fairness-of-sec-judges-is-in-spotlight-1448236970. On the other hand, Chief Judge Murray told a group of defendants that the Commissioners, who must approve actions before they are filed,  195Zaring, supra note 14, at 1199–1200. Former SEC enforcement chief George Canellos spoke out against the Commissioners playing these two roles, stating, “[T]here is a lot to be desired about the process.” Jean Eaglesham, SEC Ex-Enforcement Chief Calls for Reforms to In-House Judges, Wall St. J. (May 12, 2015, 6:53 PM), https://www.wsj.com/articles/sec-ex-enforcement-chief-calls-for-reforms-to-in-house-judges-1431471223. do not want ALJs “second-guessing them.”  196Eaglesham, supra note 194. In her own words, “So for me to say I am wiping [the charges against you] out, it looks like I am saying to these presidential appointee commissioners, . . . I am reversing you. And they don’t like that.”  197Id. Therefore, there is some pressure for ALJs to rule for the SEC, which the Commissioners would support. From January 2010 through March 2015, the Commissioners ruled in favor of the SEC on appeal 95% of the time.  198Eaglesham, supra note 5.

Even if the logistics of the ALJ and administrative procedure infrastructure at the SEC do not result in bias, the appearance of bias remains an issue. The appearance has come to the point where defendants fear they are unable to get a fair trial at the SEC.  199Eaglesham, supra note 194. Former SEC enforcement chief George Canellos called for the agency to “end the very grave appearance of injustice” at a legal conference in New York.  200Eaglesham, supra note 195. Another former SEC enforcement official, Thomas McGonigle, stated that while he didn’t believe the SEC’s ALJs were “deliberately biased,” the appearance of the administrative proceeding seems to favor the agency.  201Eaglesham, supra note 194.

Appearance of impartiality is just as critical to the ALJ system as actual impartiality. The Code of Conduct for United States Judges states that judges must “avoid impropriety and the appearance of impropriety in all activities.”  202Code of Conduct for United States Judges, supra note 45 (emphasis added). The Code notes, “Public confidence in the judiciary is eroded by irresponsible or improper conduct by judges.”  203Id. ALJs are supposed to function as judges; thus it is imperative to hold them to the same standard of impartiality.  204See Qualification Standard for Administrative Law Judge Positions, supra note 34; Republican Party of Minn. v. White, 536 U.S. 765, 793 (2002) (Kennedy, J., concurring) (“Judicial integrity is, in consequence, a state interest of the highest order.”). The appearance of ALJ bias has corroded public confidence in administrative proceedings; to prevent the system from falling apart, reform is necessary.

III. Solutions to the Appearance of ALJ Bias

A few solutions have been proposed to combat bias, yet the problem remains unresolved. This Part evaluates the different proposed solutions and ultimately rejects each in turn in favor of a new approach. Section A describes three previously proposed solutions and their shortcomings: (1) eliminating administrative proceedings, (2) allowing defendants to select the forum for their cases, and (3) creating a third-party monitoring system of ALJ decisions. Section B analyzes a new potential solution: an independent pool of neutral ALJs to be shared amongst all federal agencies.

A. Formerly Proposed Solutions and Their Shortcomings

Commentators and Congress have offered several solutions to cure the systemic bias of SEC ALJs.  205See, e.g., H.R. Rep. No. 114-697 (2016) (proposing that defendants can opt to litigate in federal court instead of an administrative proceeding); Walfish, supra note 96 (suggesting that creating an appeals process that circumvents the Commissioners would allow for more ALJ independence). The first is the most complete fix, but also the most problematic and impractical: to eliminate administrative proceedings and force all cases into federal court.  206Joseph A. Grundfest, Fair or Foul?: SEC Administrative Proceedings and Prospects for Reform Through Removal Legislation, 85 Fordham L. Rev. 1143, 1153–54 (2016) (stating that removing administrative proceedings entirely would be illogical and undesirable). This solution is so radical that it has not been seriously proposed due to the number of issues it would create. This solution would undoubtedly eliminate ALJ biases as the cases would be removed from ALJ control.  207Cf. Platt, supra note 12, at 29–30 (noting that the SEC has used administrative proceedings as a means of “unilaterally assert[ing] its interpretation of the laws”). This proposed solution was offered in the context of solving various other challenges to the SEC’s legitimacy, such as the advancement of novel theories in administrative proceedings. Id. However, this would flood the federal docket with agency enforcement actions, further backlogging the courts.  208Grundfest, supra note 206, at 1153–54; see Platt, supra note 12, at 7 (discussing the advantages of administrative proceedings). This solution would effectively move the SEC backward by substantially lengthening the time it would take to reach a decision in each enforcement action.  209Cf. Platt, supra note 12, at 6 (noting that administrative proceedings achieve results faster than district court proceedings). Additionally, this would go against congressional direction, as Congress explicitly authorized administrative proceedings to preserve agency resources.  210H.R. Rep. No. 114-697, at 13.

A second proposed solution is a less radical version of the first: allow defendants to select the forum for their cases.  211See Jean Eaglesham, SEC Faces “Crisis of Confidence” Over In-House Court, Ex-Official Says, Wall St. J. (Dec. 2, 2015, 3:45 PM), http://www.wsj.com/articles/sec-faces-crisis-of-confidence-over-in-house-court-ex-official-says-1449089157. Representative Scott Garrett proposed this solution in the Due Process Restoration Act of 2015, otherwise known as H.R. 3798.  212Due Process Restoration Act of 2015, H.R. 3798, 114th Cong. (2016). H.R. 3798 intended to solve, in part, criticisms “from former SEC judges who felt pressure to rule in favor of the Commission.”  213H.R. Rep. No. 114-697, at 3–4. The bill would allow defendants in administrative proceedings brought by the SEC to terminate the case.  214Id. at 8. The SEC would then be able to reassert the case in federal district court, effectively removing the case from administrative proceeding to federal court.  215Id.

However, this plan suffers from a couple of important shortcomings. This proposed solution would be much more costly in the long run.  216See id. Part of the appeal of administrative proceedings is the low cost to the parties, most especially to the government.  217See id. at 13. H.R. 3798 would “decrease revenues by $553 million over the 2017–2026 period . . . [and] increase discretionary costs for the SEC by about $4 million per year over the 2017–2021 period . . . .”  218Id. at 8. The private parties would likely bear the increase in costs.  219See id. (“If the SEC increases fees to offset the costs of implementing the bill, H.R. 3798 would increase the cost of an existing mandate on private entities required to pay those fees.”). Therefore, the bill is placing a premium on having a fair trial.

Most importantly, H.R. 3798 does not tackle the main issue: the biases of the ALJs. This bill would simply implement a workaround to administrative proceedings, rather than resolving the problem.  220Eaglesham, supra note 211. Similar to the first proposal of eliminating administrative proceedings, H.R. 3798 would open the floodgates to litigation in federal courts, instead of conserving valuable resources and litigating some of these cases—particularly the cases involving the most straightforward and routine legal issues—in administrative proceedings.  221Id. Tom Quaadman, vice president of the Center for Capital Markets Competitiveness in the Chamber of Commerce, stated that if administrative proceedings were truly fair and adequately protective for defendants, there would be no “stampede to federal courts.”  222Id. Quaadman pointed out that administrative proceedings further lack the same procedural protections as federal courts, amplifying the rush to file in federal court. Id. H.R. 3798 can only be successful if implemented in conjunction with other reforms to rid the ALJs of bias for the SEC.  223See id. (noting that initial reactions to H.R. 3798 have included concerns that the bill does not “go far enough”).

Finally, the SEC could implement the same changes made by the SSA after allegations that its ALJs were biased against claimants.  224New SSA Ruling Addresses ALJ Bias, supra note 100. The SSA passed a new rule, SSR 13-1p,  225SSR 13-1p, 78 Fed. Reg. 6168 (Jan. 29, 2013). which (1) established an Appeals Council to review for “unfairness, prejudice, partiality, or bias” in ALJ decisions, (2) allowed ODAR Division Quality Service to assess complaints regarding ALJ conduct from non-parties present at the hearings, and (3) permitted parties to file discrimination complaints.  226See supra notes 148–51 and accompanying text. Given the different natures of the agencies, some of these changes would not be as effective for the SEC. For example, no one alleged that the SEC discriminated against defendants based on a protected class, as had been a problem at the SSA.  227Id.

Still, the ability to appeal a decision to a specified council, not the Commissioners, would be an improvement over the current SEC appellate procedure.  228Cf. 78 Fed. Reg. 6168, 6169 (describing the SSA’s proposed appeals council). This would address the problematic dual nature of the Commissioners, who currently act as both prosecutors and judges.  229See Walfish, supra note 96. Further, it could place pressure on ALJs to rule fairly so that they will not be reversed on appeal, similar to how there is currently pressure to rule in favor of the agency to avoid being reversed by the Commissioners.  230See Eaglesham, supra note 194. However, this proposal still would not get to the root of the problem that SEC ALJs are potentially biased, and instead places the potential for redress in the hands of a hopefully righteous and unbiased appellate group within the SEC.  231Like in-house ALJs, an internal appellate system would be subject to the same potential for bias due to the nature of the employee-employer relationship between the review board and the SEC. Supra Section II.A.

B. An Independent Pool of Neutral ALJs

An ideal solution addresses not just the aftermath of biased decisions and redress for those defendants, but rather eradicates systemic bias in the SEC’s ALJs. Across all federal agencies, ALJs should be employees of the OPM and should be used for administrative proceedings based on random assignment to cases.  232Barnett, supra note 27, at 828. All agencies would share ALJs.  233Id. Therefore, it is less likely for ALJs to become biased in favor of a particular agency that they worked with because they would be working with a rotating set of agencies.

This system is comparable to the current ALJ Loan Program offered by the OPM.  234See 5 U.S.C. § 3344 (2012); 5 C.F.R. § 930.208 (2016). In the ALJ Loan Program, an agency may request the use of an ALJ from another agency if the requesting agency is temporarily understaffed.  2355 C.F.R. § 930.208. Alternatively, an agency may offer the services of one of its ALJs if the agency does not have enough work to keep the ALJ busy.  236Id. In this Comment’s proposed solution, ALJs would all be employees of the OPM, and agencies could submit requests for an ALJ to the OPM.

A unified corps of ALJs has been proposed previously, but with hesitation about how such a system would be structured.  237See Lubbers, supra note 35, at 123–24. In 1983, the Judicial Administration Division passed a resolution to support the creation of a neutral pool of ALJs.  238James E. Moliterno, The Administrative Judiciary’s Independence Myth, 41 Wake Forest L. Rev. 1191, 1227–28 (2006). However, in 1992 the Administrative Conference of the United States opposed the proposition.  239Id. at 1228. Nonetheless, numerous scholars supported the proposal, stating that it would uphold “[w]hat is important,” being “that the court/corps not be part of the agency on whose actions it is to sit in judgment.”  240Id. (alternation in original) (citation omitted).

One commentator claimed that despite the appearance of independence by removing ALJs from the direct control of individual agencies, nothing would really change in the outcome of administrative proceedings.  241Id. (“Would the increased independence of a central panel ultimately affect the nature of independence enjoyed by administrative judges? Not really.”). On the contrary, many of the recent pressing critiques of SEC ALJs would be resolved if ALJs were not employees of the SEC. If ALJs were employees of the OPM, rather than individual agencies, they would be on the OPM payroll.  242See Eaglesham, supra note 5 (noting that having ALJs on the SEC’s payroll creates the appearance of bias). The ALJs would not depend on the SEC to set their hours, administrative assistance, or travel reimbursements.  243U.S. Gov’t Accountability Off., supra note 183, at 11. The ALJs would not have their offices located on the same floor in the same building as other SEC officials.  244Eaglesham, supra note 5. There could be no complaints that the head ALJ was directing subordinate ALJs to rule in favor of the agency because there would be no head ALJ directing inferior ALJs.  245Id. The ALJs would still hear cases brought forward by agencies, but it would be hard to fathom an individual so biased that he would rule for the government in all cases, regardless of which agency or cause was at stake.  246Contra Moliterno, supra note 238, at 1228 (arguing that even neutral panels of ALJs still “act on behalf of those agencies” and “are often expected to help achieve agency objectives”).

This solution makes the ALJs truly impartial arbitrators who are held accountable by the OPM.  247Lubbers, supra note 35, at 124 (arguing that a benefit of a unified corps of ALJs would be the “enhancement of the perception (at least) of judicial independence”). If an ALJ were deemed biased, either in favor of a particular agency or based on a protected class, the OPM would conduct an independent review of the ALJ’s conduct by establishing an appeals board like the one established by the SSA.  248See New SSA Ruling Addresses ALJ Bias, supra note 100 (describing a similar review process implemented by the SSA). Since the OPM already conducts similar evaluations during the ALJ hiring process, and is therefore qualified to handle complaints of bias or prejudice, it makes more sense for this appeals board to be under the OPM’s control rather than under the control of individual agencies.  249Qualification Standard for Administrative Law Judge Positions, supra note 34. Therefore, the agency would be free to focus only on appeals relating to the relevant substantive law.

A neutral pool of ALJs means that ALJs may not be familiar with the intricacies of securities laws when they adjudicate cases for the SEC. However under the existing structure, agencies are only allowed to consider the specialized knowledge of an ALJ under rare circumstances: “[w]here agencies can justify by job analysis that special qualifications enhance performance on the job.”  250Burrows, supra note 61, at 6. In the past, agencies have requested an exception so they could hire ALJs with specialized knowledge, but have been rejected by the OPM.  251Id. The OPM likely would only allow an agency to consider specialized knowledge if an agency were deciding between two equally qualified candidates for an ALJ position.  252See id. The OPM has complete control over the ALJ hiring process  2535 U.S.C. § 3344 (2012). and has precluded agencies from considering subject-matter expertise in the hiring process.  254Burrows, supra note 61, at 6. This is indicative of the OPM’s position that ALJs need not have any prior understanding of the respective area of law to be effective at fairly adjudicating cases.  255See id. (“Agencies were no longer allowed to formally require subject-matter experience.”); cf. Qualification Standard for Administrative Law Judge Positions, supra note 34 (describing the requisite level of experience for ALJ candidates, but lacking any mention of agency or industry specific experience).

Such a process would not be very costly. It would mainly involve the shifting of ALJ costs from individual agencies to the OPM, requiring appropriate adjustments to those agency budgets.  256This proposed solution would likely be more cost-effective than other solutions that have been proposed. See H.R. Rep. No. 114-697, at 8 (2016). The additional costs would be the addition of an appeals board to the OPM, such as the one added by the SSA,  257New SSA Ruling Addresses ALJ Bias, supra note 100. and finding office space for the ALJs outside of the agencies’ buildings (which would not be an additional cost if space could be found within the OPM’s existing building space). This reorganization more efficiently uses resources the government already has, while finally quieting the criticisms of the SEC’s ALJs.

IV. Implications for a Neutral Pool of ALJs

Changing the structure of the ALJ program affects not only the SEC but also all federal agencies that use administrative proceedings and the public at large. As previously mentioned, while this Comment focuses only on the SEC as a case study, the entire administrative system could be affected by ALJ biases.  258See supra notes 148–51 and accompanying text (discussing bias at the SSA). Section A evaluates the implications for the federal docket. Section B assesses the implications for the image of justice.

A. Implications for the Federal Docket

Administrative proceedings were created to balance the federal docket by keeping routine and straightforward legal disputes in-house at the respective agencies.  259See H.R. Rep. No. 114-697, at 13. Several of the other proposed solutions failed to truly solve the problem because they would have opened the floodgates to federal courts, while leaving the administrative procedure docket barren.  260Supra Part III. The proposed solution of a neutral pool of ALJs, however, would not cause a flood to the federal courts. Instead, this solution solves the causes of systemic bias and provides all agencies with neutral ALJs. Consequently, defendants would not be as opposed to adjudication in administrative proceedings.  261Platt, supra note 12, at 46–47 (describing backlash against SEC ALJs).

B. Implications for the Administrative Image of Justice

The appearance of justice is nearly as important as actual justice in the courtroom. A defendant who feels that the judge is already against him from the moment he walks in the door will continue to feel that the result is unfair, regardless of how the trial plays out.  262Dvorak, supra note 122, at 1220. Therefore, as many commentators have stated, the appearance of injustice in the SEC’s administrative proceedings is detrimental to the agency’s legitimacy and public perception.  263Eaglesham, supra note 195 (discussing a former SEC director who called for the agency to “end the very grave appearance of injustice”); Eaglesham, supra note 211; Eaglesham, supra note 5 (“That can create an appearance issue, even if the judges are excellent, as I have every reason to believe they are.”). Improving the appearance of justice would also likely decrease the number of appeals both in federal court and to the Commissioners, as defendants are more likely to feel that they have a fair opportunity to present their case.  264See Eaglesham, supra note 5 (discussing defendants’ concerns about ALJ bias at the SEC).

The appearance of justice is crucial to success of the federal judiciary.  265Code of Conduct for United States Judges, supra note 45. If the SEC brings cases in administrative proceedings that could just as easily go to federal courts,  266SEC, Forum Selection, supra note 54 (“The Commission generally is authorized to bring its enforcement actions in either of two forums—a civil action in federal district court or a Commission administrative proceeding . . . before an Administrative Law Judge.”). why should ALJs be held to a different standard? As Justice Kennedy said, “Judicial integrity is, in consequence, a state interest of the highest order.”  267Republican Party of Minn. v. White, 536 U.S. 765, 793 (2002) (Kennedy, J., concurring).

Having independent ALJs would placate some of the need for forum selection guidelines. If ALJs were fair and unbiased, defendants would be just as willing to have their cases in administrative proceedings as in federal courts.  268Cf. Walfish, supra note 96 (noting that “ALJs strive to be fair to all parties,” but are thwarted by structural issues). However, separate issues regarding the SEC’s rules of practice may still leave defendants in want of forum selection reforms.  269Id. (criticizing the SEC Commissioners’ dual role as prosecutor and judge). The proposed solution would not change the SEC’s rules of practice; it would only eliminate the ALJs’ bias for the agency. If the SEC’s process is truly unbiased, as directors within the SEC have asserted time and time again,   270Eaglesham, supra note 5. the SEC should welcome such a change to the structure of ALJs. This alleviates the criticisms of the agency’s ALJs. Accordingly, if the process has always been unbiased, the SEC’s success rates should not dramatically change.  271See Eaglesham, supra note 159 (discussing the SEC’s success rate in administrative proceedings).

Conclusion

The SEC is at a crossroads. It can continue to defend its administrative proceedings and its ALJs as impartial and just,  272Eaglesham, supra note 5. or it can listen to the public criticisms and calls for reform by “end[ing] the very grave appearance of injustice.”  273Eaglesham, supra note 195. Until the SEC adjusts, its Commissioners and the federal courts will continue to be flooded with complaints that SEC ALJs are biased.  274See, e.g., Timbervest v. SEC, No. 1:15-CV-2106-LMM, 2015 U.S. Dist. LEXIS 132082 (N.D. Ga. Aug. 4, 2015); Eaglesham, supra note 5. Further, given today’s era of exposés and informational leaks, Judge McEwen’s claim that she was pressured to rule for the SEC is likely not the only claim of that nature in existence.  275Office of Inspector Gen., supra note 120, at 9; Eaglesham, supra note 5.

This Comment has argued that the SEC must change its current ALJ infrastructure to remove any indicia of bias in its ALJs. While several solutions have been proposed, they all have various shortcomings.  276Supra Section III.A. Some of the solutions provide workarounds for biased ALJs, but none resolve the root of the problem: bias stemming from the ALJs’ relationship with the SEC as their employer.  277Id. This Comment concludes that the best option to resolving the ALJs’ bias is to restructure the ALJ program across all agencies by having all ALJs employed by the OPM and randomly assigned to an agency for each case. The implications of this solution greatly increase the appearance of justice in administrative proceedings  278Supra Section IV.B. while maintaining the balance of cases going to federal courts and administrative proceedings.  279Supra Section IV.A. To prevent its ALJs from only hearing what they listen for, the SEC must resolve the bias complaints against its ALJs by ripping out the roots of systemic bias.

Appendix

Agency

Number of ALJs

Commodity Futures Trading Commission

0

Consumer Financial Protection Bureau

1

Department of Agriculture

2

Department of Education

2

Department of Health and Human Services/Departmental Appeals Board

5

Department of Health and Human Services/Food and Drug Administration

2

Department of Health and Human Services/Office of Medicare Hearings and Appeals

79

Department of Homeland Security/United States Coast Guard

6

Department of Housing and Urban Development

2

Department of the Interior

9

Department of Justice/Drug Enforcement Agency

2

Department of Justice/Executive Office for Immigration Review

2

Department of Labor

40

Department of Transportation/Office of the Secretary

2

Environmental Protection Agency

4

Federal Communications Commission

1

Federal Energy Regulatory Commission

12

Federal Labor Relations Authority

3

Federal Maritime Commission

2

Federal Mine Safety and Health Review Commission

15

Federal Trade Commission

1

International Trade Commission

6

Merit Systems Protection Board

0

National Labor Relations Board

34

National Transportation Safety Board

3

Occupational Safety and Health Review Commission

12

Office of Financial Institution Adjudication

2

Securities and Exchange Commission

5

Small Business Administration

0

Social Security Administration

1,537

United States Postal Service

1

Total

1,792

ALJs by Agency, Off. of Personnel Mgmt., https://www.opm.gov/services-for-agencies/administrative-law-judges/#url=ALJs-by-Agency (last visited Oct. 1, 2016).

Footnotes

1Harper Lee, To Kill a Mockingbird 174 (Warner Books 1998) (1960).

2See Tyler L. Spunaugle, The SEC’s Increased Use of Administrative Proceedings: Increased Efficiency or Unconstitutional Expansion of Agency Power?, 34 Rev. Banking & Fin. L. 406 (2015).

3See, e.g., Hill v. SEC, 825 F.3d 1236 (11th Cir. 2016); Timbervest v. SEC, No. 1:15-CV-2106-LMM, 2015 U.S. Dist. LEXIS 132082 (N.D. Ga. Aug. 4, 2015).

4Peter J. Henning, Constitutional Challenges to S.E.C.’s Use of In-House Judges, N.Y. Times (Oct. 5, 2015), https://www.nytimes.com/2015/10/06/business/dealbook/constitutional-challenges-to-secs-use-of-in-house-judges.html.

5Jean Eaglesham, SEC Wins with In-House Judges, Wall St. J. (May 6, 2015, 10:30 PM), http://www.wsj.com/articles/sec-wins-with-in-house-judges-1430965803.

6See Office of Administrative Law Judges, U.S. Sec. & Exchange Commission, https://www.sec.gov/alj (last modified Jan. 26, 2017) (describing the role of ALJs as “independent adjudicators”).

7See Exchange Act of 1934, 15 U.S.C. § 78u(h)(9)(B) (2012); Office of Chief Counsel, U.S. Sec. & Exch. Comm’n, Enforcement Manual 84 (2016).

8Office of Administrative Law Judges, supra note 6.

9See id.

10See id.

11Press Release, U.S. Sec. & Exch. Comm’n, SEC Chair Mary Jo White Announces Departure Plans (Nov. 14, 2016), https://www.sec.gov/news/pressrelease/2016-238.html.

12Alexander I. Platt, SEC Administrative Proceedings: Backlash and Reform, 71 Bus. Law. 1, 14 (2015). ALJs are appointed by human resources officials within the SEC—not by the Commission directly—and are not removable by the President, both of which would violate Article II § 2 of the Constitution if ALJs were found to be “inferior officers.” Id. at 14–15; U.S. Const. art. II, § 2, cl. 2 (“[B]ut the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.”).

13Platt, supra note 12, at 17. When a case is heard in an administrative proceeding as opposed to federal court, the defendant loses the opportunity to be heard by a jury, as juries are not used in administrative proceedings. Id.; see U.S. Const. amend. VII (“In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved . . . .”).

14David Zaring, Enforcement Discretion at the SEC, 94 Tex. L. Rev. 1155, 1195 (2016) (“[T]hey are arguing that the unfair discrimination lies in the selection of their case for administrative proceedings, while comparable cases go to court.”).

15Id. at 1197 (challenging forum selection, the jurisdiction of administrative proceedings, and “agency officials act[ing] as judge, jury, and prosecutor”).

16See Eaglesham, supra note 5.

17Bebo v. SEC, 799 F.3d 765 (7th Cir. 2015), cert. denied, 136 S. Ct. 1500 (2016) (discussing removal issue); Brief of Petitioner, Pierce v. SEC, 136 S. Ct. 1713 (2016) (No. 15-901) (discussing appointment issue).

18See infra notes 199–204 and accompanying text (discussing the negative effects of perceived bias).

19See discussion infra Section II.A.

20Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. §§ 5301–5641 (2012).

21Spunaugle, supra note 2, at 406 (“The SEC has taken advantage of this expanded authority by increasingly preferring to pursue enforcement actions in front of [administrative proceedings] rather than the district courts.”).

22Eaglesham, supra note 5.

23Id.

24See Platt, supra note 12, at 9; Spunaugle, supra note 2, at 413; Zaring, supra note 14, at 1175.

25See infra Section II.A.

26See, e.g., Eaglesham, supra note 5 (highlighting the SEC’s success rate in administrative proceedings); Kimberley A. Strassel, The SEC Plays Judge and Jury, Wall St. J. (Aug. 4, 2016, 7:30 PM), http://www.wsj.com/articles/the-sec-plays-judge-and-jury-1470353410 (criticizing the SEC’s trend towards administrative proceedings).

27Kent Barnett, Resolving the ALJ Quandary, 66 Vand. L. Rev. 797, 804–05 (2013).

28See supra note 26 and accompanying text.

29Current SEC Commissioners, U.S. Sec. & Exchange Commission, https://www.sec.gov/about/commissioner.shtml (last modified Sept. 17, 2013).

30Id.

31Id.

32Id. Because no individual was confirmed when Commissioner Kara Stein’s term ended in June 2017, she may continue to serve as a commissioner for up to eighteen months following the expiration of her term. Id.

33Press Release, U.S. Sec. & Exch. Comm’n, supra note 11.

34Qualification Standard for Administrative Law Judge Positions, Off. of Personnel Mgmt., https://www.opm.gov/policy-data-oversight/classification-qualifications/general-schedule-qualification-standards/specialty-areas/administrative-law-judge-positions/ (last visited Oct. 1, 2016).

35Jeffrey S. Lubbers, Federal Administrative Law Judges: A Focus on Our Invisible Judiciary, 33 Admin. L. Rev. 109, 111 (1981).

36Id.

37Id.

38 Qualification Standard for Administrative Law Judge Positions, supra note 34. See Lubbers, supra note 35, at 111.

39Administrative Procedure Act, 5 U.S.C. § 554(d) (2012).

40See Lubbers, supra note 35, at 111–12. Whether ALJs are actually insulated from the politics and pressure of their respective agencies is another matter. See infra Part II.

41Qualification Standard for Administrative Law Judge Positions, supra note 34.

42Lubbers, supra note 35, at 110.

43Christopher B. McNeil, Similarities and Differences Between Judges in the Judicial Branch and the Executive Branch: The Further Evolution of Executive Adjudications Under the Administrative Central Panel, 18 J. Nat’l Ass’n Admin. L. Judges 1, 6 (1998) (quoting Barry v. Bowen, 825 F.2d 1324, 1330 (9th Cir. 1987)) (“[A]dministrative decision makers do not bear all the badges of independence that characterize an Article III judge, but they are held to the same standard of impartial decision making.”).

44Office of Administrative Law Judges, supra note 6.

45See Code of Conduct for United States Judges, U.S. Courts, http://www.uscourts.gov/judges-judgeships/code-conduct-united-states-judges (last modified Mar. 20, 2014) (excluding ALJs from the list of judges to whom the code applies).

46Id.

47Id.

48See Republican Party of Minn. v. White, 536 U.S. 765, 793 (2002) (Kennedy, J., concurring) (“The citizen’s respect for judgments depends in turn upon the issuing court’s absolute probity.”).

49Lubbers, supra note 35, at 110.

50See Barnett, supra note 27, at 804 (describing ALJ employment requirements). The selective certification process served to allow agencies to seek out ALJs with specialized knowledge. See infra Section I.C.

51ALJs by Agency, Off. of Personnel Mgmt., https://www.opm.gov/services-for-agencies/administrative-law-judges/#url=ALJs-by-Agency (last visited Oct. 1, 2016).

52Id. For a breakdown of ALJs by agency, see the reproduction of the OPM’s chart in the Appendix.

53Cf. 5 U.S.C. § 554(a) (2012) (detailing the application of the statute to administrative hearings but leaving open the possibility that a case be brought in court instead).

54U.S. Sec. & Exch. Comm’n, Division of Enforcement Approach to Forum Selection in Contested Actions 1, https://www.sec.gov/divisions/enforce/enforcement-approach-forum-selection-contested-actions.pdf (last visited Oct. 1, 2016) [hereinafter SEC, Forum Selection].

55Id.

56Id. No one factor is dispositive, but the guide notes, “Not all factors will apply in every case and, in any particular case, some factors may deserve more weight than others, or more weight than they might in another case. Indeed, in some circumstances, a single factor may be sufficiently important to lead to a decision to recommend a particular forum.” Id. Thus, defendants have no ability to predict in which forum the SEC will pursue a case.

57Id.

58Id. (“[ALJs] . . . develop extensive knowledge and experience concerning the federal securities laws and complex or technical securities industry practices or products.”).

59See 5 U.S.C. § 3105 (2012).

60Id.

61Likewise, ALJs are also subject to agency- or office-wide reductions in force. Vanessa K. Burrows, Cong. Research Serv., RL34607, Administrative Law Judges: An Overview 9 (2010).

625 U.S.C. § 3105.

63Lubbers, supra note 35, at 112.

645 U.S.C. § 3344 (2012).

65Lubbers, supra note 35, at 115.

665 U.S.C. § 3317(a) (2012); Lubbers, supra note 35, at 115.

675 U.S.C. § 3318 (2012); Lubbers, supra note 35, at 115 (“The agency is then obliged to make its selection from those three who have the highest scores and are actually available for appointment.”).

68Lubbers, supra note 35, at 112 (“[OPM] has been exclusively responsible for the initial examination, certification for selection, and compensation of ALJs.”).

69Qualification Standard for Administrative Law Judge Positions, supra note 34.

70Id.

71Id.

72Id.

73Lubbers, supra note 35, at 114.

74Id. at 112.

75Id.

76Id. There are two separate registries, one for GS-16 grade level and one for GS-15 level. Id. Most agencies employ GS-16 level ALJs, but four—the SSA; the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF); the Department of Housing and Urban Development; and the U.S. Coast Guard—employ GS-15 level ALJs. Id. at 112–13, 113 n. 19.

77See id. at 115; 5 U.S.C. § 3317(a) (2012).

78See Qualification Standard for Administrative Law Judge Positions, supra note 34.

79See infra Part II.

80Barnett, supra note 27, at 805.

81Lubbers, supra note 35, at 117.

82Id.

83Barnett, supra note 27, at 805.

84Lubbers, supra note 35, at 117–18. Other agencies included the Department of Agriculture, the Civil Aeronautics Board, the Federal Communications Commission, the Federal Energy Regulatory Commission, the Department of Labor, the Interstate Commerce Commission, the National Labor Relations Board, ATF, SSA, and the U.S. Coast Guard. Id.

85Id. at 118.

86Id.

87Barnett, supra note 27, at 805.

88Burrows, supra note 61, at 6 (citing Office of Personnel Mgmt., Examination Announcement No. 318 at 8 (1984)).

89Barnett, supra note 27, at 805.

90Burrows, supra note 61, at 6.

91Id.

92Id.

93See Barnett, supra note 27, at 805 (noting that the OPM ended selective certification in response to charges of ALJ bias).

94Eaglesham, supra note 5.

95See supra Section I.B.

96See, e.g., Eaglesham, supra note 5 (suggesting SEC ALJ bias); Henning, supra note 4 (describing constitutional challenges to the SEC’s ALJ program); Daniel R. Walfish, The Real Problem with SEC Administrative Proceedings, and How to Fix It, Forbes (July 20, 2015), https://www.forbes.com/sites/danielfisher/2015/07/20/the-real-problem-with-sec-administrative-proceedings-and-how-to-fix-it/#5b88c4bf2e01 (concluding that the real problem was with the SEC’s appellate process, but still noting the issue of potentially biased ALJs).

97Cf. Eaglesham, supra note 5; Henning, supra note 4; Walfish, supra note 96.

98See Eaglesham, supra note 5; Strassel, supra note 26. Large amounts of money are at stake in SEC enforcement actions. Office of Administrative Law Judges, supra note 6 (“For fiscal year 2016, [ALJs] . . . ordered approximately $12.4 million in disgorgement and approximately $14.5 million in civil penalties.”). The actions frequently involve well-known business organizations and individuals. See, e.g., Aruna Viswanatha et al., Golfer Phil Mickelson Sued, Two Others Charged in Insider-Trading Case, Wall St. J. (May 19, 2016, 7:49 PM), http://www.wsj.com/articles/former-dean-foods-chairman-thomas-davis-charged-with-insider-trading-143663773 (detailing renowned golfer Phil Mickelson’s involvement in an insider trading case); Press Release, U.S. Sec. & Exch. Comm’n, Merrill Lynch to Pay $415 Million for Misusing Customer Cash and Putting Customer Securities at Risk (Jun. 23, 2016), https://www.sec.gov/news/pressrelease/2016-128.html; Press Release, U.S. Sec. & Exch. Comm’n, SEC Charges Bank of America with Securities Laws Violations in Connection with Regulatory Capital Overstatements (Sept. 29, 2014), https://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543065483.

99See Eaglesham, supra note 5; Henning, supra note 4; Walfish, supra note 96.

100See, e.g., Scott Elkind, The War on So-Called “Outlier” Administrative Law Judges, Am. Ass’n for Just.: Soc. Security Disability L. Newsl., https://www.justice.org/sections/newsletters/articles/war-on-so-called-“outlier”-administrative-law-judges (last visited Oct. 29, 2016); Press Release, Gibson Dunn, Historic Class Action Settlement Provides New Hearings and Protections to Thousands of Disabled New Yorkers Wrongly Denied Social Security Benefits (Jan. 14, 2013), http://www.gibsondunn.com/news/Pages/HistoricClassActionSettlementProvidesNewHearingsandProtections.aspx; New SSA Ruling Addresses ALJ Bias, LaPorte L. Firm (Feb. 21, 2013), http://laportelawfirm.com/2013/02/21/new-ssa-ruling-addresses-alj-bias/.

101See Hill v. SEC, 825 F.3d 1236, 1237 (11th Cir. 2016); Tilton v. SEC, 824 F.3d 276, 278–79 (2d Cir. 2016), cert. denied, 137 S. Ct. 2187 (2017); Bebo v. SEC, 799 F.3d 765, 767 (7th Cir. 2015), cert. denied, 136 S. Ct. 1500 (2016).

102Cf. Tumey v. Ohio, 273 U.S. 510, 535 (1927) (finding a right to an impartial judge).

103No. 1:15-CV-2106-LMM, 2015 U.S. Dist. LEXIS 132082 (N.D. Ga. Aug. 4, 2015) (challenging the constitutionality of the SEC’s ALJ appointment procedures).

104Eaglesham, supra note 5.

105Timbervest, 2015 U.S. Dist. LEXIS 132082, at *1–2.

106See Order Requesting Additional Briefing, Investment Advisers Act Release No. 4166, Investment Company Act Release No. 31749, 2015 SEC LEXIS 3294 (Aug. 11, 2015). Administrative proceedings are directly appealable only to the SEC Commissioners. Hill, 825 F.3d at 1238. The SEC’s final order may then be appealed to federal district court. Id. at 1237.

107Timbervest, 2015 U.S. Dist. LEXIS 132082, at *12.

108See Eaglesham, supra note 5.

109Id.

110Id.

111See id. (“[T]he burden was on the people who were accused to show that they didn’t do what the agency said they did.”).

112Timbervest, 2015 U.S. Dist. LEXIS 132082, at *12.

113Renae Merle, Cuban on His Crusade Against the SEC—and When He’ll Be Satisfied, Wash. Post (Mar. 17, 2016), https://www.washingtonpost.com/business/economy/cuban-on-his-crusade-against-the-sec—and-when-hell-be-satisfied/2016/03/17/619d9e9a-ebae-11e5-b0fd-073d5930a7b7_story.html (“Instead of sending the cases to federal court, the SEC puts them before an [ALJ] whom defense attorneys have complained could be biased in favor of the agency.”).

114Strassel, supra note 26.

115Tilton v. SEC, 824 F.3d 276 (2d Cir. 2016), cert. denied, 137 S. Ct. 2187 (2017); Strassel, supra note 26.

116Strassel, supra note 26.

117Id.

118Id.

119Id.

120Office of Inspector Gen., U.S. Sec. & Exch. Comm’n, Report of Investigation: Case # 15-ALJ-0482-1 1 (2016), https://www.sec.gov/oig/reportspubs/Final-Report-of-Investigation.pdf.

121Id. at 8.

122Id. at 1. See Michael Dvorak, Note, SEC Administrative Proceedings and Equal Protection “Class of One” Challenges: Evaluating Concerns About SEC Forum Choices, 2015 Colum. Bus. L. Rev. 1195, 1199 (2015), for a discussion of how the SEC’s rules of practice unduly burden defendants.

123Office of Inspector Gen., supra note 120, at 1.

124See id. at 9–14.

125See id.

126Id. at 10–14.

127Id. at 5 n.1 (“[T]he allegations of bias or improper influence investigated were limited to instructions, directives or orders on how to rule on motions, decide questions of facts or law, or make other dispositions of any particular administrative proceeding given by the Chief ALJ to the other ALJs without regard to the evidence or applicable legal authority.”).

128Id. at 6–7.

129Id. at 15.

130Id. at 16.

131Respondents’ Supplemental Brief in Further Support of Motion to Allow Submission of Additional Evidence & Leave to Adduce Additional Evidence at 1, Timbervest, LLC, Administrative Proceeding File No. 3-15519 (June 4, 2015) [hereinafter Respondents’ Supplemental Brief].

132Id. at 4–5.

133Id. at 4.

134Id. at 5.

135Id.

136Office of Inspector Gen., supra note 120, at 7.

137Id.

138Id. at 11 (alteration in original).

139Id. at 8 (“Chair Mary Jo White requested an OIG investigation of the alleged bias issue because the identified concerns could impact all ALJs and the SEC administrative proceedings.”).

140See id. at 5–7 (“Specifically, the OIG investigated allegations that were attributed to McEwen and included in a May 6, 2015 WSJ article . . . .”).

141Merle, supra note 113. The journalist who interviewed Cuban also appeared unconvinced. See id. (“Instead of sending the cases to federal court, the SEC puts them before an [ALJ] whom defense attorneys have complained could be biased in favor of the agency.”).

142Suzanne Barlyn, Watchdog Clears U.S. SEC’s In-House Judges of Bias Allegations, Reuters (Feb. 16, 2016, 4:57 PM), http://www.reuters.com/article/us-sec-court-bias-idUSKCN0VP2OL.

143Press Release, Gibson Dunn, supra note 100.

144Id.

145Id.

146Id.

147SSR 13-1p, 78 Fed. Reg. 6168 (Jan. 29, 2013).

148Id. at 6168–69.

149Id.

150Id. at 6170; New SSA Ruling Addresses ALJ Bias, supra note 100.

151SSR 13-1p, 78 Fed. Reg. 6168, 6169 (Jan. 29, 2013); New SSA Ruling Addresses ALJ Bias, supra note 100.

152Compare About Us, Soc. Security Admin., https://www.ssa.gov/agency.html (“We pay benefits to over 60 million people including retirees, children, widows, and widowers.”), with What We Do, U.S. Sec. & Exchange Commission, https://www.sec.gov/Article/whatwedo.html (last updated June 10, 2013) (“The SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds.”).

153Compare supra notes 120–42 (describing the SEC’s response to bias allegations), with supra notes 143–51 (describing the SSA’s response).

154Platt, supra note 12, at 9.

155See Spunaugle, supra note 2, at 410 (“The SEC’s use of administrative proceedings has rapidly increased in the years since Dodd-Frank’s passage.”).

156Platt, supra note 12, at 7.

157See Giles D. Beal, IV, Judge, Jury and Executioner: SEC Administrative Law Judges Post-Dodd Frank, 20 N.C. Banking Inst. 413, 417 (2016) (“Before Dodd-Frank, the SEC could only seek monetary penalties . . . in front of ALJs if the individual or entity was registered with the SEC.”).

158Id. at 424–25. Disgorgement is “the repayment of illegally gained profits (or avoided losses) for distribution to harmed investors whenever feasible.” Id. at 425.

159Jean Eaglesham, SEC Is Steering More Trials to Judges It Appoints, Wall St. J., http://www.wsj.com/articles/sec-is-steering-more-trials-to-judges-it-appoints-1413849590 (last updated Oct. 21, 2014, 9:40 AM).

160Platt, supra note 12, at 8.

161Beal, supra note 157, at 417.

162Id. A broader look at the SEC’s forum selection demonstrates that the popularity of administrative proceedings has increased over time in correspondence with similar acts broadening the agency’s enforcement powers. Platt, supra note 12, at 9–10. From 2010 through 2015, the number of administrative proceedings brought by the SEC increased from roughly 375 to over 500. Id. at 10. However, the jump following the Dodd-Frank Act represents the highest proportion of actions going to administrative proceedings to date. See id. This jump is likely the largest as the Dodd-Frank Act provided the SEC with two enforcement powers previously unavailable in either forum. See id. at 7.

163Spunaugle, supra note 2, at 413.

164Eaglesham, supra note 159.

165Spunaugle, supra note 2, at 412.

166Eaglesham, supra note 159.

167Id.

168Spunaugle, supra note 2, at 412.

169Beal, supra note 157, at 417–18.

170Platt, supra note 12, at 9.

171Eaglesham, supra note 5.

172Id.

173Ryan Tracy, Donald Trump’s Transition Team: We Will “Dismantle” Dodd-Frank, Wall St. J., https://www.wsj.com/articles/donald-trumps-transition-team-we-will-dismantle-dodd-frank-1478800611 (last updated Nov. 10, 2016, 6:29 PM).

174See generally Robin J. Artz et al., Advancing the Judicial Independence and Efficiency of the Administrative Judiciary: A Report to the President-Elect of the United States, 29 J. Nat’l Ass’n Admin. L. Judiciary 93 (2009) (providing guidelines for avoiding ALJ bias pre-Dodd Frank Act). Many of the changes promised by President Trump involve loosening current financial regulations and embracing big banks, but the SEC will continue to enforce the remaining financial regulations. Stephen J. Lubben, Trump’s Presidency Raises Questions on the Future of Wall St. Regulation, N.Y. Times (Nov. 14, 2016), https://www.nytimes.com/2016/11/15/business/dealbook/trumps-presidency-raises-questions-on-the-future-of-wall-st-regulation.html?_r=0; Ryan Tracy and Michael C. Bender, Trump Signs Actions to Begin Scaling Back Dodd-Frank, Wall St. J., https://www.wsj.com/articles/trump-signs-executive-actions-toward-scaling-back-dodd-frank-financial-regulation-1486148274 (last updated Feb. 3, 2017, 2:47 PM).

175Platt, supra note 12, at 8.

1765 U.S.C. § 554 (2012).

177See Eaglesham, supra note 159 (noting the SEC’s increasing use of administrative proceedings since the passage of Dodd-Frank).

178Eaglesham, supra note 5.

179 Examining Due Process in Administrative Hearings: Statement Before the Subcomm. on Regulatory Affairs and Fed. Mgmt. of the S. Comm. on Homeland Sec. and Governmental Affairs, 114th Cong. 2 (2016) (statement of Joseph Kennedy, Associate Director of Human Resources Solutions, U.S. Office of Personnel Management).

180Id. at 3.

181Pay Administration, Off. of Personnel Mgmt., https://www.opm.gov/policy-data-oversight/pay-leave/pay-administration/fact-sheets/administrative-law-judge-pay-system/ (last visited Dec. 26, 2016). Pay may be lowered for “good cause” following a disciplinary proceeding or upon request by an ALJ. Burrows, supra note 61, at 3. While this may seem insidious, the OPM added this option due to frequent ALJ requests for less responsibility. Id.

182Burrows, supra note 61, at 7.

183U.S. Gov’t Accountability Off., GAO/GGD-96-27, Administrative Law Judges: Comparison of SEC and CFTC Programs 11 (1995).

184Office of the Inspector Gen., U.S. Sec. & Exch. Comm’n, supra note 120, at 9. Locality adjustments are typically respected by the federal agencies, at least when determining salaries. Pay Administration, supra note 181.

185U.S. Gov’t Accountability Office, supra note 183, at 11.

186Eaglesham, supra note 5.

187Id.

1885 U.S.C. § 7521 (2012); Burrows, supra note 61, at 8.

189Burrows, supra note 61, at 8.

190See id. So far, sexually harassing employees, refusing to travel or to schedule cases requiring travel, refusing to deliver legal documents, disregarding the safety of others, failing to meet financial obligations, misusing office mail supplies, violating agency rules, being unable to work due to disability, refusing to set hearing dates, and “a high rate of significant adjudicatory errors” have been “good cause” rationales. Id.

191See id. at 8–9.

192Office of Administrative Law Judges, supra note 6. Under de novo review, the Commissioners are not bound by the findings of the ALJs, which raises a secondary issue regarding what the value of an ALJ is if the Commissioners can later go in and conduct their own decision. Lorenzo, Securities Act Release No. 9762, Exchange Act Release No. 74836 at 17, 2015 WL 1927763 (April 29, 2015) (“Any alleged deficiencies in the [ALJ]’s analysis are of no consequence because our review is de novo; the violations we find and the sanctions we impose are based on our own independent review of the record.”).

193Office of Administrative Law Judges, supra note 6. Decisions by the Commissioners are further appealable to a U.S. Court of Appeals. Id.

194Jean Eaglesham, Fairness of SEC Judges Is in Spotlight, Wall St. J. (Nov. 22, 2015, 9:25 PM), http://www.wsj.com/articles/fairness-of-sec-judges-is-in-spotlight-1448236970.

195Zaring, supra note 14, at 1199–1200. Former SEC enforcement chief George Canellos spoke out against the Commissioners playing these two roles, stating, “[T]here is a lot to be desired about the process.” Jean Eaglesham, SEC Ex-Enforcement Chief Calls for Reforms to In-House Judges, Wall St. J. (May 12, 2015, 6:53 PM), https://www.wsj.com/articles/sec-ex-enforcement-chief-calls-for-reforms-to-in-house-judges-1431471223.

196Eaglesham, supra note 194.

197Id.

198Eaglesham, supra note 5.

199Eaglesham, supra note 194.

200Eaglesham, supra note 195.

201Eaglesham, supra note 194.

202Code of Conduct for United States Judges, supra note 45 (emphasis added).

203Id.

204See Qualification Standard for Administrative Law Judge Positions, supra note 34; Republican Party of Minn. v. White, 536 U.S. 765, 793 (2002) (Kennedy, J., concurring) (“Judicial integrity is, in consequence, a state interest of the highest order.”).

205See, e.g., H.R. Rep. No. 114-697 (2016) (proposing that defendants can opt to litigate in federal court instead of an administrative proceeding); Walfish, supra note 96 (suggesting that creating an appeals process that circumvents the Commissioners would allow for more ALJ independence).

206Joseph A. Grundfest, Fair or Foul?: SEC Administrative Proceedings and Prospects for Reform Through Removal Legislation, 85 Fordham L. Rev. 1143, 1153–54 (2016) (stating that removing administrative proceedings entirely would be illogical and undesirable).

207Cf. Platt, supra note 12, at 29–30 (noting that the SEC has used administrative proceedings as a means of “unilaterally assert[ing] its interpretation of the laws”). This proposed solution was offered in the context of solving various other challenges to the SEC’s legitimacy, such as the advancement of novel theories in administrative proceedings. Id.

208Grundfest, supra note 206, at 1153–54; see Platt, supra note 12, at 7 (discussing the advantages of administrative proceedings).

209Cf. Platt, supra note 12, at 6 (noting that administrative proceedings achieve results faster than district court proceedings).

210H.R. Rep. No. 114-697, at 13.

211See Jean Eaglesham, SEC Faces “Crisis of Confidence” Over In-House Court, Ex-Official Says, Wall St. J. (Dec. 2, 2015, 3:45 PM), http://www.wsj.com/articles/sec-faces-crisis-of-confidence-over-in-house-court-ex-official-says-1449089157.

212Due Process Restoration Act of 2015, H.R. 3798, 114th Cong. (2016).

213H.R. Rep. No. 114-697, at 3–4.

214Id. at 8.

215Id.

216See id.

217See id. at 13.

218Id. at 8.

219See id. (“If the SEC increases fees to offset the costs of implementing the bill, H.R. 3798 would increase the cost of an existing mandate on private entities required to pay those fees.”).

220Eaglesham, supra note 211.

221Id.

222Id. Quaadman pointed out that administrative proceedings further lack the same procedural protections as federal courts, amplifying the rush to file in federal court. Id.

223See id. (noting that initial reactions to H.R. 3798 have included concerns that the bill does not “go far enough”).

224New SSA Ruling Addresses ALJ Bias, supra note 100.

225SSR 13-1p, 78 Fed. Reg. 6168 (Jan. 29, 2013).

226See supra notes 148–51 and accompanying text.

227Id.

228Cf. 78 Fed. Reg. 6168, 6169 (describing the SSA’s proposed appeals council).

229See Walfish, supra note 96.

230See Eaglesham, supra note 194.

231Like in-house ALJs, an internal appellate system would be subject to the same potential for bias due to the nature of the employee-employer relationship between the review board and the SEC. Supra Section II.A.

232Barnett, supra note 27, at 828.

233Id.

234See 5 U.S.C. § 3344 (2012); 5 C.F.R. § 930.208 (2016).

2355 C.F.R. § 930.208.

236Id.

237See Lubbers, supra note 35, at 123–24.

238James E. Moliterno, The Administrative Judiciary’s Independence Myth, 41 Wake Forest L. Rev. 1191, 1227–28 (2006).

239Id. at 1228.

240Id. (alternation in original) (citation omitted).

241Id. (“Would the increased independence of a central panel ultimately affect the nature of independence enjoyed by administrative judges? Not really.”).

242See Eaglesham, supra note 5 (noting that having ALJs on the SEC’s payroll creates the appearance of bias).

243U.S. Gov’t Accountability Off., supra note 183, at 11.

244Eaglesham, supra note 5.

245Id.

246Contra Moliterno, supra note 238, at 1228 (arguing that even neutral panels of ALJs still “act on behalf of those agencies” and “are often expected to help achieve agency objectives”).

247Lubbers, supra note 35, at 124 (arguing that a benefit of a unified corps of ALJs would be the “enhancement of the perception (at least) of judicial independence”).

248See New SSA Ruling Addresses ALJ Bias, supra note 100 (describing a similar review process implemented by the SSA).

249Qualification Standard for Administrative Law Judge Positions, supra note 34.

250Burrows, supra note 61, at 6.

251Id.

252See id.

2535 U.S.C. § 3344 (2012).

254Burrows, supra note 61, at 6.

255See id. (“Agencies were no longer allowed to formally require subject-matter experience.”); cf. Qualification Standard for Administrative Law Judge Positions, supra note 34 (describing the requisite level of experience for ALJ candidates, but lacking any mention of agency or industry specific experience).

256This proposed solution would likely be more cost-effective than other solutions that have been proposed. See H.R. Rep. No. 114-697, at 8 (2016).

257New SSA Ruling Addresses ALJ Bias, supra note 100.

258See supra notes 148–51 and accompanying text (discussing bias at the SSA).

259See H.R. Rep. No. 114-697, at 13.

260Supra Part III.

261Platt, supra note 12, at 46–47 (describing backlash against SEC ALJs).

262Dvorak, supra note 122, at 1220.

263Eaglesham, supra note 195 (discussing a former SEC director who called for the agency to “end the very grave appearance of injustice”); Eaglesham, supra note 211; Eaglesham, supra note 5 (“That can create an appearance issue, even if the judges are excellent, as I have every reason to believe they are.”).

264See Eaglesham, supra note 5 (discussing defendants’ concerns about ALJ bias at the SEC).

265Code of Conduct for United States Judges, supra note 45.

266SEC, Forum Selection, supra note 54 (“The Commission generally is authorized to bring its enforcement actions in either of two forums—a civil action in federal district court or a Commission administrative proceeding . . . before an Administrative Law Judge.”).

267Republican Party of Minn. v. White, 536 U.S. 765, 793 (2002) (Kennedy, J., concurring).

268Cf. Walfish, supra note 96 (noting that “ALJs strive to be fair to all parties,” but are thwarted by structural issues).

269Id. (criticizing the SEC Commissioners’ dual role as prosecutor and judge).

270Eaglesham, supra note 5.

271See Eaglesham, supra note 159 (discussing the SEC’s success rate in administrative proceedings).

272Eaglesham, supra note 5.

273Eaglesham, supra note 195.

274See, e.g., Timbervest v. SEC, No. 1:15-CV-2106-LMM, 2015 U.S. Dist. LEXIS 132082 (N.D. Ga. Aug. 4, 2015); Eaglesham, supra note 5.

275Office of Inspector Gen., supra note 120, at 9; Eaglesham, supra note 5.

276Supra Section III.A.

277Id.

278Supra Section IV.B.

279Supra Section IV.A.

Executive Managing Editor, Emory Law Journal, Volume 67; Emory University School of Law, J.D., 2018; University of Oklahoma, B.A., 2015. I would like to thank my faculty advisor, Professor Jonathan Nash, for his guidance and enthusiasm throughout the writing process. I would also like to thank the members of the Emory Law Journal Executive Board, particularly Caryn Wang, Matthew Demartini, and Janiel Myers for their feedback and edits in preparing this Comment for publication. Finally, to my friends and family: thank you for enduring the writing process with me. I am endlessly grateful for your love and support.