Since the 2010 passage of the Dodd-Frank Act, the U.S. Securities and Exchange Commission (“SEC”) has been the subject of growing criticism regarding its increased use of administrative proceedings. By enacting Dodd-Frank, Congress vastly expanded the enforcement powers afforded to the SEC by allowing it to address potential violations, such as insider trading, in its internal administrative courts rather than in federal court.
While the SEC attributes its increased use of administrative proceedings to the significant benefits the administrative proceedings provide, critics argue that these benefits only favor the SEC. For starters, SEC administrative proceedings are governed by judges hired and employed by the SEC. As such, critics argue that the administrative proceedings lack important protections afforded to litigants in federal court, such as juries, discovery, and the application of the federal rules of evidence and procedure. Additionally, the increased use of its in-house courts has raised concern that the SEC is unfairly tipping the scales in its favor, especially given that the SEC wins an average of 90% of the actions it brings before its in-house courts as opposed to only 69% in federal court.
In light of this criticism, federal courts have seen an influx of cases challenging the constitutionality of the SEC’s administrative courts, which has produced inconsistent outcomes. In Bebo v. SEC,  Laurie Bebo challenged the SEC’s constitutional authority to impose penalties after an SEC administrative law judge ordered her to pay $4.2 million for violating certain securities laws. The district court dismissed Bebo’s case for lack of subject-matter jurisdiction and held that Bebo was required to complete the proceedings in the SEC’s in-house court before appealing to federal court. The Seventh Circuit affirmed the decision, and in February 2016, Bebo filed a petition for certiorari review before the Supreme Court.
Following the decision in Bebo, some federal courts have dismissed similar cases for lack of jurisdiction, requiring parties to defend a possibly unconstitutional prosecution in the SEC’s courts before seeking relief in federal courts. In contrast, other courts have exercised jurisdiction to rule on the merits of a constitutional challenge, including issuing a preliminary injunction to halt the administrative proceedings. Despite these inconsistent rulings and a persuasive amicus brief filed by businessman Mark Cuban, the Supreme Court recently declined to address the issue and denied Bebo’s petition for certiorari review.
Most recently, the Eleventh Circuit decided to weigh in on the issue and heard oral argument in the cases of Hill v. SEC and Gray Financial Group, Inc. v. SEC  to determine if federal courts have jurisdiction to review constitutional challenges to the SEC’s use of administrative proceedings. Depending on the outcome, a split by the Eleventh Circuit could lead the Supreme Court to grant certiorari and provide a highly sought-after review of the SEC’s expanded powers under Dodd-Frank.