In a previous GT Alert, we summarized and analyzed the Supreme Court’s June 21, 2018, decision in Lucia v. Securities & Exchange Commission, 138 S. Ct. 2044 (2018). That GT Alert cited the SEC’s 30-day stay of “all administrative proceedings” “before an administrative law judge” and foretold continued uncertainty concerning the status of administrative law judges and their decisions. A subsequent 30-day stay was issued on July 20, 2018, and expired on Aug. 22, 2018. On that date, the SEC issued an order entitled In re: Pending Administrative Proceedings (the Order), summarizing the SEC’s position on, and reaction to, the Lucia decision.

The Order is clear in at least one respect. In response to the Supreme Court’s holding that complaining litigants are entitled to “a new ‘hearing before a properly appointed’ official,” the Order provides for “the opportunity for a new hearing before an ALJ who did not previously participate” in a pending proceeding. The SEC will provide such an opportunity through a “remand [of] all proceedings” and will “vacate any prior opinion” issued in these matters. In an exhibit to the Order, the SEC listed 126 proceedings that may be subject to remand.1 The next day, the SEC’s Chief ALJ issued a subsequent notice identifying an additional 68 currently-pending cases for remand.

The Order also leaves some discretion to the litigants themselves. It solicits “express agreement[s] by the parties regarding alternative procedures” for assigning cases to the Chief ALJ for her consideration. The Chief ALJ’s subsequent notice explained that the parties could also, upon mutual agreement, decide to “remain with the previously designated administrative law judge.” The parties’ decisions on these matters must be provided to the Chief ALJ no later than Sept. 7, 2018. She, in turn, will reassign cases no later than Sept. 21, 2018. Then, within 21 days of assignment, the parties may again “submit proposals for the conduct of further proceedings.”

Finally, the Order seems to affirm the SEC’s belief in the constitutional validity of its Nov. 30, 2017, ratification of its five administrative law judges (notwithstanding that their initial appointments were carried out by SEC staff). It states that “in an abundance of caution and for avoidance of doubt, we today reiterate our approval of their appointments as our own under the constitution.”

While the Order’s grant of new hearings to complaining litigants seems straightforward enough, its two other features – giving litigants a say in their fates moving forward and affirming the constitutional validity of the Nov. 30, 2017, ratification – raise several questions. What will be the nature of these alternative procedures? Will those litigants accept ratification of the current crop of ALJs whose initial appointments gave rise to the challenge ultimately heard by the Lucia Court? If the litigants demand adjudicators other than those five ALJs, how might the SEC react? In short, it seems possible that these lingering questions may lead to further uncertainty and, perhaps, to further litigation.

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Photo of Elaine C. Greenberg Elaine C. Greenberg

Elaine C. Greenberg has over 30 years of securities law experience, including a 25-year tenure at the SEC. Her practice focuses on SEC, FINRA, DOJ, State Attorneys General and other securities and financial services regulatory matters, examinations, investigations, enforcement actions, and litigation; white…

Elaine C. Greenberg has over 30 years of securities law experience, including a 25-year tenure at the SEC. Her practice focuses on SEC, FINRA, DOJ, State Attorneys General and other securities and financial services regulatory matters, examinations, investigations, enforcement actions, and litigation; white collar defense and corporate investigations; and public finance. She has represented, advised, and counseled: major financial institutions and other financial services firms and their associated persons, including banks, underwriters, broker-dealers, investment advisers, investment companies, and municipal advisors; issuers of securities, including public companies and their officers and directors, and state and local governmental entities and their officials; and other organizations and individuals.

Prior to entering private practice, Elaine served as a senior officer in the SEC’s Enforcement Division in dual roles. As the inaugural Chief of the Specialized Unit for Municipal Securities and Public Pensions, she built and led a nationwide unit to oversee the SEC’s enforcement efforts in the multitrillion-dollar municipal securities and public pensions marketplaces. As Associate Director of the Philadelphia Regional Office, she was responsible for overseeing the SEC’s enforcement program in the Mid-Atlantic region.

Photo of Steven M. Felsenstein Steven M. Felsenstein

Steven M. Felsenstein is Co-Chair of the Investment Management Practice and Co-Chair of the Financial Regulatory and Compliance Practice and focuses his practice on serving clients involved in financial services industries. He advises investment companies registered under the Investment Company Act of 1940…

Steven M. Felsenstein is Co-Chair of the Investment Management Practice and Co-Chair of the Financial Regulatory and Compliance Practice and focuses his practice on serving clients involved in financial services industries. He advises investment companies registered under the Investment Company Act of 1940, investment advisers registered under the Investment Advisers Act, and other administrators and service providers involved in the industry. Steven also represents broker-dealers and transfer agents registered under the Securities Exchange Act of 1934, and issuers of securities under the Securities Act of 1933. Steven represents clients in connection with administrative proceedings conducted by the SEC and FINRA, and participates in related actions. Steven’s prior practice includes experience as a staff member in the Division of Corporation Finance and as a Branch Chief in the Division of Investment Management at the U.S. Securities & Exchange Commission.