Category: Bergen County

Scott Garrett with Franklin Lakes residents at their annual town fair.
Oct 22, 2015
the staff of the Ridgewood blog

WASHINGTON, D.C. – Rep. Scott Garrett (NJ-05), Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, today introduced H.R. 3798, the Due Process Restoration Act. This legislation will rein-in the Securities and Exchange Commission’s (SEC) controversial overuse of in-house administrative law judges (ALJs) and ensure that all Americans are given due process by allowing defendants the option of having their case heard before a federal court.

“Strong enforcement of the securities laws is an essential part of the SEC’s mission to protect investors and maintain a fair and efficient marketplace, but in recent years the agency has transformed into a veritable judge, jury, and executioner with its blatant overuse of their in-house courts,” said Garrett. “Every American has the constitutional right to defend themselves before a fair and impartial court, and the Due Process Restoration Act will go a long way towards protecting the rights of the innocent while maintaining the ability of the SEC to punish wrongdoers.”

The Due Process Restoration Act will:

Provide a mandatory right of removal allowing the defendant to request that the case be moved to a district court
Grant a right of removal to defendants who are subject to a cease and desist order and monetary penalty that the commission is seeking
Raise the burden of proof for cases that remain in the ALJ to a higher “clear and convincing evidence” standard

Background:

In the wake of the 2010 Dodd-Frank Act, which granted the SEC expanded administrative enforcement powers, the SEC started trying an increasing number of alleged wrongdoers before its in-house administrative panels rather than in the federal courts established by Article III of the Constitution.

The Wall Street Journal reported that from October 2010 through March of this year, the SEC won 90 percent of cases that came before SEC judges.  In contrast, the SEC achieved less than a 70 percent outcome when the case is held in federal court. In addition to its success rate, the overall number of cases before the Commission’s in-house panels has increased nearly 75 percent over the past ten years.

The SEC has heard repeated criticism of these in-house panels from defendants who feel they weren’t given due process, former SEC judges who felt pressure to rule in favor of the Commission, and U.S. District Judges who find the panels unconstitutional.

The Commission recently announced that it will be giving more legal safeguards to defendants that come before its in-house administrative panels. Unfortunately, the SEC’s proposed changes fall well short of addressing many of these concerns and its enforcement practices continue to violate the separation of powers guaranteed by the Constitution.