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The purpose of this paper is to analyze the Supreme Court’s decision in Lucia v. Securities and Exchange Commission, 138 S.Ct. 2044 (June 21, 2018).

The approach of this paper is to discuss the Securities and Exchange Commission’s (“SEC”) use of Administrative Law Judges (“ALJs”), and the litigation challenging the appointment of those ALJs, culminating in the Supreme Court’s decision in Lucia.

In Lucia, the Court held that SEC ALJs are “officers of the United States,” and thus subject to the Constitution’s Appointments Clause, which limits the power to appoint “officers” to the President, “Courts of Law” or “Heads of Departments.” Because the ALJ who presided over Lucia’s administrative proceeding was not appointed by the SEC itself, the Court held that the ALJ’s appointment was unconstitutional and ordered the SEC to provide Lucia with a new hearing in front of a new (constitutionally appointed) ALJ.

The Supreme Court’s decision in Lucia provides defense counsel with new ammunition to challenge SEC administrative proceedings. It will likely have a significant effect on many pending and already-concluded SEC administrative proceedings but also leaves open a number of important questions for further litigation.

This paper provides expert analysis and guidance from experienced securities litigators.

To explain the background, controversy and possible future developments related to the US Securities and Exchange Commission’s (SEC’s) increased use of administrative proceedings (APs), rather than court actions, in bringing enforcement matters.

Discusses the SEC’s historic forum selection process, the home court advantage APs may give to the SEC, changes the SEC has proposed to the Rules of Practice governing APs, arguments challenging the constitutionality of APs, a jurisdictional hurdle faced by respondents challenging APs before federal courts, and possible future developments.

Critics consider the SEC’s expanded use of APs to be procedurally biased, unconstitutional, and unfairly advantageous to the SEC. In response, the SEC has offered guidance explaining its forum selection process, proposed procedural changes, and its belief that its systems are fair.

Practical guidance from experienced financial services and securities litigation lawyers.

The increased regulatory scrutiny in recent years of public corporations, broker‐dealers, and other investment companies has led to a wave of legislative and regulatory reforms. Central to these reforms is the Sarbanes‐Oxley Act (“SOX” or “the Act”), enacted in July 2002. Intended to restore investor confidence in ailing financial markets reeling from a spate of highly publicized corporate governance scandals, the Act reforms the oversight of corporate accounting practices and addresses a wide range of corporate accountability issues. In addition, the Act significantly raises the protections for employees of public companies who report conduct that they reasonably believe constitutes a violation of federal law relating to financial, securities, or shareholder fraud. Thus, the Act creates new federal administrative and judicial remedies for employees who believe they have been retaliated against for blowing the whistle on corporate fraud.

To explain an administrative law judge (ALJ) decision, along with a censure, fine, and industry disbarment, against an investment adviser for misleading advertising and false claims of compliance with Global Investment Performance Standards (GIPS).

Explains the background to GIPS, the investment adviser’s GIPS violations, the significance of the case, and lessons to be learned by investment advisors on compliance with GIPS standards.

The decision is particularly significant because the ALJ issued such severe sanctions based solely on false claims of GIPS compliance notwithstanding the fact that all reported performance returns were accurate and no investors relied on or were harmed by the false claims of compliance.

The Zavanelli case should serve to put firms on notice that persistent noncompliance with the GIPS standards can have serious consequences and that all marketing materials should be subject to effective review and approval policies and procedures prior to distribution or publication to ensure compliance with the GIPS standards.

Practical guidance from experienced financial services lawyers.

To explain and evaluate amendments to the rules of practice governing the US Securities and Exchange Commission’s (SEC’s) Administrative Proceedings that were adopted by the Commission on July 13, 2016.

Describes SEC’s increased pursuit of enforcement actions in APs, criticisms of the AP process, and corrective legislation. Describes the July 2016 amendments covering expansion of the prehearing period, allowance of depositions, timing for completion of document production in discovery phase, required disclosure of affirmative defenses, permitted dispositive motions, and admissibility of hearsay evidence. Assesses the practical impact of the amendments. Makes recommendations concerning advanced preparation for APs, depositions and witness-interview strategies, particular care concerning statements in Wells submission, availability of investigative record to defense counsel, admissibility of hearsay evidence, and defenses based on reliance on counsel.

The amended rules are a step in the right direction but do not fully correct the numerous and severe imbalances that exist in the Commission’s administrative enforcement process with respect to the availability of various discovery mechanisms, the timeline for trying a case, and more.

Every entity or individual that is involved in an SEC enforcement investigation, or that may become a respondent in an SEC Administrative Proceeding, should take certain practical steps such as those recommended in this article to minimize the structural disadvantages it will face and to maximize the benefits conferred by these latest amendments to the rules of practice.

Practical background and guidance from experienced enforcement, litigation, securities and financial services lawyers.

In this chapter we consider the Individuals with Disabilities Education Improvement Act’s (IDEA 2004) provision that requires that students’ special education services in their individualized education programs be based on peer-reviewed research (PRR). We begin by reviewing federal legislation (i.e., Educational Sciences Reform Act, 2002, IDEA 2004; No Child Left Behind Act, 2001; Reading Excellence Act, 1998), which influenced the PRR principle and eventually the PRR language in IDEA. Next, we examine the US Department of Education’s interpretation of PRR in IDEA 2004 and review administrative hearings and court cases that have further clarified the PRR requirement. Finally, we make recommendations for teachers and administrators working to meet the PRR requirement when developing intervention plans for students with disabilities.

The purpose of this paper is to determine with statistics whether respondents should litigate or settle enforcement actions with the SEC or FINRA.

All SEC administrative and FINRA litigated decisions from October 1, 2007 to September 30, 2008 were reviewed to see, among other things, how often the staff succeeded in proving its charges and, when it did, what penalties were sought and awarded. The approach is empirical, designed to inject meaningful quantitative data into the decision of whether to litigate.

The research shows, among other things, that respondents rarely win on liability but are usually successful in persuading SEC ALJs or FINRA panels to impose substantially lower sanctions than the staff sought.

The primary limitation is that it is usually not known what terms were offered to settle cases by the staff prior to the complaint being filed.

The implication is that respondents in SEC and FINRA cases should consider more carefully whether to litigate rather than settle.

The statistics in the study are new and provide new evidence confirming prior years' studies. Any potential SEC or FINRA respondent would be interested in the statistics presented here.

Few new laws in recent years have inspired as much attention as the Sarbanes‐Oxley Act of 2002 (Act). The procedural and substantive requirements of the Act have, and will continue to have, far reaching impact on and implications for all issuers of securities and their officers, directors, and other controlling persons. However, for employers who are participants in the financial services industry (such as broker‐dealers, investment advisors, fund advisors and managers, and others), the Act raises an unintended and untoward consequence, which appears to have passed under the radar screens of most commentators.