In the last few weeks, the SEC and its administrative law judges (“ALJs”) have tested the truthfulness of the old adage, “There’s no such thing as bad publicity.”

On May 3, 2017, the United States Court of Appeals for the Tenth Circuit denied the SEC’s request to rehear a decision, in which the Court determined that the SEC’s administrative law judges were unconstitutional appointments. That decision was just another setback for the SEC in a high-stakes constitutional debate which could potentially put the issue of how the SEC appoints its ALJs before the Supreme Court. Later this month, much to the dismay of the SEC, the United States Court of Appeals for the D.C. Circuit will rehear arguments in its decision, which initially held in favor of the SEC.

But, it is not only these legal defeats that have cast a shadow over the SEC’s internal court system. A recent article in the New York Times chronicling the story of a fund manager and his five-year ordeal with the SEC begs the question: how fair and impartial are the SEC’s ALJs?

As with many federal agencies, such as the Federal Deposit Insurance Corporation or the Social Security Administration, the SEC has its own administrative law judges. These judges internally handle enforcement actions brought by the SEC staff and, in many ways, perform the same functions as a trial judge in federal or state court. However, as the story of Eric D. Wanger suggests, the SEC’s judges may not be as fair and impartial as one would hope and expect.

In many ways, Eric Wanger had the proverbial book thrown at him during his ALJ hearing. Routine document requests he made upon the SEC for its investigative findings were denied; expert testimony proffered by a Stanford Law professor on Mr. Wanger’s behalf was summarily rejected. In the end, as a result of 15 improper trades, totaling $2,270 in “ill-gotten gains,” Mr. Wanger settled with the SEC in 2012 for a $75,000 penalty and a suspension from the securities industry. But while Mr. Wanger’s story may, at first, appear to be an anomaly, this is not the first time the impartiality of the SEC’s ALJs has been called into question.

As the Times article points out, the SEC has a better track record of success when it handles matters “in-house” as opposed to in federal court. Indeed, for the five years preceding fiscal year 2016, the SEC successfully prosecuted 89% of matters before its ALJs, compared to a 76% success in federal district courts. In March 2015, Congress took up this issue of the SEC’s ALJs in a hearing of the House Financial Services Subcommittee. When presented with these statistics of the SEC’s success rate before its ALJs, one lawmaker quipped, “And you might say ‘You know what, I want to bring more cases in front of the judges that I hire and abide by the rules that I set as opposed to letting these cases go to federal court…and, lo and behold, I win them all…That’s a great way to administer justice when you work at the SEC.”

One proposed solution could be to reform the process by which ALJs are appointed and, given the recent rumblings in the circuit courts of appeals, that may be the direction in which we are headed. By removing the power of appointment from the SEC itself to fill its ranks of ALJs, there would be one additional degree of independence between the SEC and its in-house judges. Other observers have proposed more procedural tweaks with respect to how initial decisions of an ALJ are reviewed by the Commission. Whatever the solution may be, the SEC’s ALJs are under more scrutiny than ever and it is possible we could see substantive changes to the SEC’s system of ALJs in the near future.