Administrative/Regulatory
Feb. 17, 2016
SEC internal investigation finds no evidence of bias by administrative law judges
An investigation by the Securities and Exchange Commission's Office of the Inspector General has cleared commission-appointed administrative law judges of showing bias in favor of the SEC in adversarial proceedings against SEC targets.
Daily Journal Staff Writer
An investigation by the Securities and Exchange Commission's Office of the Inspector General has cleared commission-appointed administrative law judges of showing bias in favor of the SEC in adversarial proceedings against SEC targets.
"The OIG did not develop any evidence to support the allegations of improper influence," Inspector General Carl W. Hoecker wrote in a memo to SEC Chair Mary Jo White. It was attached to the 26-page report on the investigation released last week. "Also, former and current Office of ALJ staff stated that ALJ decisions were made independently and free from influence of Chief ALJ Brenda Murray."
The investigation was triggered by accusations in May 2015 newspaper reports by now-former Administrative Law Judge Lillian McEwen that Murray chastised her about decisions in favor of defendants and questioned her loyalty to the SEC.
"With the exception of McEwen's allegations, the OIG investigation found that the criticisms Murray had of ALJs were not related to the substance of their decisions when presiding over cases, but rather to the timeliness in which they issued their decisions and/or the procedural quality of their work," the report said. "Furthermore, the OIG investigation identified only possible reference to loyalty by Murray, but the reported emphasis was loyalty to the quality of the ALJ process and not loyalty to the SEC Division of Enforcement."
The findings are unlikely to dampen criticism of the SEC's administrative law proceedings.
"I don't think the IG's report is going to move the needle one way or the other," said Thomas Zaccaro, a former SEC trial counsel and a founding partner of the boutique firm Zaccaro Morgan LLP. He said the rules of the proceedings that favor the SEC are the real culprit. "It's not going to change the perception the ALJ proceedings themselves are biased in favor of the SEC."
That criticism has swelled as the SEC has turned to administrative law judge hearings more and more to litigate accusations of financial regulatory violations by companies and individuals since the passage of the Dodd-Frank Act in 2010. That law gave the commission more power to impose penalties and sanctions in administrative proceedings.
Tim O'connor
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