The Securities and Exchange Commission's move to pursue more cases in-house instead of through the courts could come to an abrupt end this spring, depending on how the Supreme Court weighs in on a case challenging the constitutionality of agency judges.
SEC officials defend their use of their administrative law judges. But they found themselves without White House support in November, when the U.S. Solicitor General asked the Supreme Court to reconsider the judges' legal authority.
Given that conflict, court watchers are predicting that the agency may soon have to change its tactics — and possibly even revisit hundreds of cases.
The high court agreed Jan. 12 to accept a case, Raymond J. Lucia and Raymond J. Lucia Companies Inc. vs. Securities and Exchange Commission, which asks the justices to decide whether SEC administrative law judges are officers of the U.S. and not simply agency employees.
Under the Constitution, officers must be appointed by the president, the head of a federal agency or a court.
The current practice of five SEC in-house judges being selected by the SEC's chief judge and approved by the SEC personnel office has provided the agency with what the U.S. Chamber of Commerce and others say is a home court advantage.
Using in-house judges has eased somewhat compared to robust activity during the Obama administration, said Joshua Hess, a partner at law firm Dechert LLP in Washington. "It's no secret that the Trump administration has taken a fairly strident view on what they feel are the perils of the administrative state."
If the SEC loses at the Supreme Court, "you are going to see a definite move away. It will give the government less leverage in their enforcement actions," Mr. Hess said.
Filing enforcement cases through administrative proceedings became a more attractive option for SEC enforcement officials when the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 gave them more discretion to choose that option and added the authority to impose substantial monetary penalties.
Cases handled by SEC administrative law judges involve less discovery than federal court actions and do not involve depositions, interrogatories, juries or rules of evidence. The limited discovery time and expedited hearing process make it harder for defendants to mount the same defenses available in federal courts, legal experts say.
"The process lends itself to a prosecutorial advantage," said Mr. Hess.