SCOTUS: SEC v Cochran - administrative state no longer has carte blanche to run amok

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Woman Wins Years-Long Battle Against Regulator, Dealing Blow To Administrative State​

The Securities and Exchange Commission (SEC) dropped its more than seven year-long case against accountant Michelle Cochran after her April Supreme Court victory against the agency.

Cochran’s case began in 2016 when the SEC brought charges against her for allegedly aiding and abetting in violations stemming from incomplete accounting paperwork, according to court documents. An administrative law judge (AJL) banned her from practicing as an accountant for five years and imposed a $22,500 fine in 2017.

The Supreme Court held unanimously in April that individuals like Cochran who are facing SEC complaints can dispute their constitutionality in federal court before going through the agency’s internal adjudication process. Before Cochran was able to revive her constitutional challenge, the agency dropped the case altogether in June — along with more than 40 other pending cases, according to a press release.

Under a stipulation the SEC agreed to Tuesday, it will not bring future proceedings against Cochran. The New Civil Liberties Alliance (NCLA), the law firm representing Cochran, also agreed to dismiss its case against the agency.

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Just weeks after the U.S. Supreme Court opened the door to more extensive judicial oversight of executive branch agencies' internal courts, the Securities and Exchange Commission (SEC) dropped dozens of those cases—including one that prompted the Court's ruling.

The sudden mass dismissal of 42 cases within the SEC's administrative legal system was the result of what the agency calls a "control deficiency." That's quite the euphemism for what actually happened. In a statement, the SEC admitted that officials within the enforcement division had accessed memos and drafts from within the administrative court system.

In layman's terms, the SEC's police force was able to view documents akin to notes between judges and their clerks.

The scenario highlights one of the fundamental problems with the administrative legal systems that independent executive agencies like the SEC use to adjudicate enforcement actions brought by the agency's regulators. Effectively, the judges in those courts are employed by the prosecutors. And in these 42 cases—and possibly more—they were sharing notes with each other but not the people they were regulating.

"We deeply regret that the agency's internal systems lacked sufficient safeguards surrounding access," the SEC said in the statement. "We take this lapse in controls very seriously and are committed to both informing the public about the scope of this issue and preventing any similar lapses in the future."

Despite the agency's pledge, it seems like dropping those cases was a step away from accountability.

"Without a doubt, the mass dismissal of these open cases is an evasion of the review promised by the Supreme Court," says Peggy Little, senior counsel at the New Civil Liberties Alliance (NCLA). "Conveniently, it also seeks to extinguish discovery on the breadth, depth and extent of file-sharing" between the SEC's courts and cops.
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An administrative court scandal at the SEC

Why did the SEC suddenly dismiss dozens of cases?

reason.com

The more I read about the SEC, the more I see them as a bad actor and not a watchdog for the American public.