SEC Under Siege! Dramatic Inspector General Report Shakes ALJ System

August 10, 2015

On August 7, 2015, the Securities and Exchange Commission's ("SEC's") Office of the Inspector General issued an Interim Report of Investigation (15-ALJ-0482-1). This dramatic Report was purportedly in response to "allegations of bias on the part of Administrative Law Judges in the Commission's Administrative proceedings." As more fully explained in the Report:

This investigation was initiated on June 30, 2015, based on information provided by Erica Williams, Deputy Chief of Staff, Office of the Chair, concerning alleged potential issues of fairness and bias in the SEC's administrative proceedings, including those introduced in the Timbervest, LLC (Timbervest) matter."
. . .

[W]illiams stated that Lillian McEwen, former SEC ALJ, alleged bias, which was reported in the May 6, 2015, WSJ article. According to the WSJ article, McEwen claimed that Chief ALJ Brenda Murray pressured McEwen to make rulings in certain ways. Williams was not aware of any other forum in which McEwen had made these allegations. According to Williams, McEwen left the SEC in 2007.

Williams stated that in a particular case involving Timbervest, ALJ Cameron Elliot's initial decision was appealed to the Commission, and the respondent sought to depose ALJ Elliot. In support of those efforts, the respondent asserted the aforementioned claims of bias as described in the WSJ article.

Subsequently, the Commission issued an order (dated June 4, 2015), inviting AU Elliot to file an affidavit addressing the allegations of inappropriate pressure or bias in the administrative proceedings. On June 9, 2015, ALJ Elliot notified Brent Fields, SEC Secretary, that he "respectfully declined to submit the affidavit" requested in the order. Williams advised it was unclear why AU Elliot declined the invitation to provide an affidavit.

According to Williams, Chair Mary Jo White requested an OIG investigation of the alleged bias issue because the identified concerns could impact all ALJs and the SEC administrative proceedings.

The OIG reviewed the Securities Diary and WSJ news articles that Williams identified, which included the following statements attributed to former ALJ McEwen: she thought the system was slanted against defendants at times; she came under fire from Chief ALJ Murray for finding too often in favor of defendants; Chief ALJ Murray questioned McEwen's loyalty to the SEC. McEwen retired as a result of the criticism; and SEC judges were expected to work on the assumption that "the burden was on the people who were accused to show that they didn't do what the agency said they did."

Also see:

SEC ALJ Issues Breathtaking Dismissal Of Compliance Professional Case ( Blog, August 6, 2015) Maybe we now have an explanation for this decision????

Tryin' To Loosen My Load, I've Got 7 SEC Lawyers On My Mind
( Blog, June 26, 2015)