Fair or Foul?: SEC Administrative Proceedings and Prospects for Reform Through Removal Legislation

This Article catalogues the long list of criticisms of the Commission’s administrative proceedings. It also evaluates data describing the outcome of litigated matters and finds that, with the exception of insider trading cases, the Commission has an exceptionally high and statistically indistinguishable record of success in administrative and federal court proceedings alike. The data thus seem not to support the view that the Commission has a generalized home-court advantage in administrative proceedings. Nonetheless, the Commission’s virtually unfettered discretion in forum selection decisions, when it can assign cases to a forum that it controls, raises a plethora of institutional design concerns

Brief for Urska Velikonja and Joseph A. Grundfest as Amici Curiae in Support of Neither Party in Lucia v. SEC, No. 17-130 (U.S. Supreme Court)

The amicus brief takes no position on the merits of this case and expresses no view as to its resolution. Instead, we write exclusively to address two empirical questions raised by the debate over the Commission’s reliance on administrative enforcement of the federal securities laws. First, is there statistically reliable evidence that ALJs systematically resolve cases in a manner that differs from the resolution of equivalent Commission actions filed in federal district court? Second, has the Commission steered a disproportionate share of contested proceedings to ALJs because the Commission is more likely to prevail before those ALJs? The amicus brief reports on the findings of an empirical analysis that examines every enforcement action filed by the SEC from the beginning of fiscal year 2007 through September 30, 2017, the end of the SEC’s 2017 fiscal year, and resolved prior to January 1, 2018. Contrary to the suggestions that appear in the press and are cited in the briefing, there is no statistically reliable evidence that the Commission has a “home court” advantage before ALJs. We also find that the SEC has continued to litigate a large majority of contested proceedings in federal district court, and not before its ALJs. There is no statistically reliable evidence that the Commission is steering a disproportionate share of litigation to the administrative forum in order to capitalize on this non-existent advantage

The Missing Millions: Cy Pres in Federal Securities Class Actions

Under prevailing cy pres doctrine, class-action-settlement residuals that cannot efficiently or fairly be distributed to the class may be distributed to a third party that represents the “next best” recipient consistent with class interests. Judges embrace cy pres despite theoretical concerns over inattention, conflicts, and abuse. We shed empirical light on the cy pres debate by examining an original, hand-collected dataset of 373 class-action settlements entered between 2010 and 2018. We document that the theoretical concerns have empirical merit. More than 57% of the settlements lack any evidence in the public record of the identity or court approval of cy pres recipients. At an average cy pres award of around $20,000, we estimate the value of unaccounted-for residuals in all federal securities class-action settlements since 1996 as exceeding$25 million. Among identified cy pres recipients, most have little or no relationship to interests of the class, and we find some evidence of conflicts of interest. These findings raise concerns about potential breaches of fiduciary duty and noncompliance with Federal Rules of Civil Procedure. We suggest that these deficiencies are caused by a combination of self-interest and inattention on the part of plaintiff’s counsel, lead plaintiffs, and the courts. We also offer solutions to remediate these deficiencies. Prospectively, we propose presumptions for the selection of appropriate recipients of the residual, mandatory disclosure of conflicts, and prior judicial approval of cy pres distributions. Retrospectively, we urge courts to order disclosure of missing information and to consider appropriate disciplinary measures, contingent on the information disclosed