WASHINGTON (Legal Newsline) – A fight over how the Securities and Exchange Commission conducts prosecutions is headed to the U.S. Supreme Court.
On Monday, the court decided to take on Texas accountant Michelle Cochran’s fight with the SEC. She complains that those prosecuted by the SEC have to fight those allegations before administrative law judges who were hired by the SEC.
In late 2021, the U.S. Court of Appeals for the Fifth Circuit ruled Cochran could challenge the constitutionality of the system in federal court.
“Federal courts have an unflagging duty to enforce the Constitution before Americans like Michelle must endure years-long administrative adjudications that are predestined to be vacated on constitutional grounds,” said Peggy Little, senior litigation counsel for the New Civil Liberties Alliance.
“May the SEC’s long reign of regulation by procedural evisceration end soon!”
The Fifth Circuit’s ruling said Cochran had the right to sue in federal court over the three layers of protection the SEC’s governing statute gives administrative law judges to insulate them from political pressure. Cochran and her supporters argue that is two too many layers of protection under U.S. Supreme Court precedent.
The Fifth Circuit agreed, in a 9-7 decision that drew a lengthy concurrence that was harshly critical of the administrative state as well as a dissent that argued federal courts should leave agencies like the SEC alone to do their jobs. The decision by the historically conservative Fifth Circuit conflicts with precedent in at least three other federal circuits and may well wind up before the Supreme Court as conservatives and liberals fight over how accountable federal regulatory agencies must be to elected officials and the courts.
The Fifth Circuit ruled that Section 78y of the Securities Exchange Act doesn’t strip federal courts of jurisdiction to hear constitutional questions about agency structure. The SEC argued – and multiple courts have agreed – that the statute requires the targets of SEC investigations to wait until their cases are concluded before appealing any administrative decision to a so-called Article III federal court.
The law does prevent courts from interfering in ongoing investigations, the Fifth Circuit ruled, but not fundamental challenges to an agency’s legitimacy.
“Cochran challenges the entire legitimacy of her proceedings, not simply the cost and annoyance,” the majority ruled.
The Cochran case drew a friend-of-the-court brief from billionaire Mark Cuban, who actually fought SEC insider-trading charges in court and won. Cuban believed there was no way he could win before an ALJ, Little previously told Legal Newsline.