Questions Raised Over The Constitutionality Of SEC Administrative Proceedings

As noted in previous articles, Canada and the US have different approaches to regulatory enforcement. Canadian securities regulators overwhelmingly address regulatory non-compliance through enforcement proceedings commenced before their own adjudicative tribunals. In the US, the SEC staff often proceeds in the civil courts. However, enforcement actions can also be pursued by administrative law judges in certain circumstances.

In the noteworthy decision in Tilton et al. v. SEC, the US Second Circuit addressed the constitutionality of SEC administrative law judges, also known as ALJs, who are directly appointed by the SEC. Tilton is the latest in a series of cases to challenge the SEC's power to appoint the judges before whom it brings prosecutions as a violation of the Appointments Clause of the US Constitution.

ALJs and procedural fairness

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC gained increased powers to bring prosecutions as administrative proceedings before ALJs. Since then, the SEC has brought an...