OIG Finds No Merit to Claims Against ALJs of Bias in SEC Proceedings | Practical Law

OIG Finds No Merit to Claims Against ALJs of Bias in SEC Proceedings | Practical Law

After a months-long investigation prompted by media reports, the Securities and Exchange Commission's Office of the Inspector General (OIG) recently found no merit to allegations against administrative law judges of bias in SEC administrative proceedings.

OIG Finds No Merit to Claims Against ALJs of Bias in SEC Proceedings

Practical Law Legal Update w-001-4999 (Approx. 3 pages)

OIG Finds No Merit to Claims Against ALJs of Bias in SEC Proceedings

by Practical Law Litigation
Published on 08 Mar 2016 • USA (National/Federal)
After a months-long investigation prompted by media reports, the Securities and Exchange Commission's Office of the Inspector General (OIG) recently found no merit to allegations against administrative law judges of bias in SEC administrative proceedings.
After a months-long investigation prompted by media reports, the Securities and Exchange Commission's (SEC) Office of the Inspector General (OIG) recently found no merit to allegations against administrative law judges (ALJs) of bias in SEC administrative proceedings (SEC: Report of Investigation: Case No. 15-ALJ-0482-1).
The OIG initiated its investigation in 2015 based on a referral it received internally and media reports of alleged improper influence on ALJs to favor the SEC in administrative proceedings. (Wall Street Journal: SEC Wins With In-House Judges (subscription required)). The investigation focused on whether SEC Chief ALJ Brenda Murray put any undue pressure on other ALJs concerning how to:
  • Rule on motions.
  • Decide questions of facts or law.
  • Make other dispositions.
In its report, dated January 21, 2016, the OIG concluded that there was no evidence to support allegations of bias and pressure in SEC administrative proceedings. Based on statements from former and current ALJs and other staff affiliated with the Office of ALJs, as well as review of relevant documentary evidence, the OIG report found that:
  • ALJ decisions were made independently and free from influence of Chief ALJ Murray.
  • An ALJ's claim that Chief ALJ Murray questioned her loyalty to the SEC because she ruled in favor of respondents did not support a finding of improper influence or bias. The criticisms that Chief ALJ Murray had of the ALJs related to the timeliness of their decisions and the procedural quality of the work, not to the substance of their decisions when presiding over administrative proceedings.
  • There was no evidence to support the allegations that ALJ personnel were pressured to shift the burden of proof to respondents.
The SEC has faced a rising tide of criticism aimed at the fairness of its administrative proceedings. Several respondents have challenged the constitutionality of the SEC's appointment of ALJs. The SEC appoints all of the ALJs who hear its administrative cases, in potential violation of Article II of the US Constitution (see U.S. Const. art. II, § 2, cl. 2).
In September 2015, the SEC proposed amendments to its Rules of Practice that address some of the fairness concerns, including expanding discovery devices available to parties and prohibiting unreliable evidence. The public comment period ended on December 4, 2015, but the SEC has not to date adopted the amendments.
For more information on SEC administrative proceedings, see the following resources: