In a 30-day period, the U.S. Securities and Exchange Commission (“SEC”) has released guidance in three ways regarding certain views on the important role and potential liability risks of chief compliance officers (“CCOs”). SEC Commissioner Hester M. Peirce first raised these topics in a speech to the National Society of Compliance Professionals, advocating for greater clarity regarding the SEC’s decisions to impose individual liability on compliance professionals and challenging the wisdom of charging chief compliance officers “based on mere negligence.” Hester M. Peirce, When the Nail Fails—Remarks before the National Society of Compliance Professionals (Oct. 19, 2020). Book-ended thirty days later, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a “Risk Alert” titled OCIE Observations: Investment Adviser Compliance Programs (“OCIE Compliance Risk Alert”). That same day, OCIE Director Peter Driscoll gave a speech that served as the Opening Remarks at National Investment Adviser/Investment Company Compliance Outreach 2020, titled The Role of the CCO – Empowered, Senior and With Authority, Peter Driscoll (Nov. 19, 2020). It is unprecedented for the SEC to discuss this important topic utilizing several platforms in such a short period. Taking notice of this, below we analyze the guidance provided by each. We also observe that the SEC’s focus on the role of compliance is not new but that sometimes the SEC’s support for compliance has not appeared to extend beyond OCIE. Cf. Lori Richards’ (then-OCIE Director) October 2007 Speech “Working Towards a Culture of Compliance: Some Obstacles in the Path” (observing that an effective compliance program required management support, a “seat at the table” for the CCO, adequate compliance staffing relative to the size and risks of the firm’s business, and “tone at the top” from the CEO down); with Luis A Aguilar’s (then SEC Commissioner) June 2015 Speech “The Role of the Chief Compliance Officers Must be Supported” (defending recent SEC enforcement actions against CCOs and explaining that those CCOs acting in “good faith” should not fear the SEC).
Yesterday, the CFTC’s Division of Enforcement formally issued new guidance regarding the Division’s decisions to recommend the imposition of civil monetary penalties. According to the CFTC, “[t]he guidance memorializes the existing practice within the Division,” but “has now been incorporated into the Division’s Enforcement Manual.” CFTC, CFTC Division of Enforcement Issues Civil Monetary Guidance.
Recently, the Department of Justice indicted three precious metals traders in the Northern District of Illinois, charging each them with violating the Racketeer Influenced and Corrupt Organization Act (“RICO”), committing wire and bank fraud, and conspiring to commit price manipulation, bank fraud, wire fraud, commodities fraud, and “spoofing.” Two of those traders were also charged with committing commodities fraud, spoofing, and attempted price manipulation and were named as defendants in a civil suit brought by the CFTC in the same court, alleging violations of the Commodity Exchange Act and CFTC Regulations.
Both the indictment and the civil complaint contend that over the course of approximately seven years, the defendants intentionally manipulated the price of precious metals futures contracts by “spoofing,” or “placing orders to buy or sell futures contracts with the intent to cancel those orders before execution.” Specifically, both the indictment and the CFTC complaint detailed numerous instances in which the defendants allegedly placed “genuine orders” to either buy or sell futures contracts that they intended to execute, some of which were “iceberg” orders placed without publically displaying their full size. According to the indictment and complaint, after such orders were placed, defendants then quickly placed one or more opposite orders, sometimes “layering [them] at different prices in rapid succession” in order to give the impression that demand for such contracts was rising or falling, depending on the nature of the trader’s genuine orders. Once genuine orders were fulfilled, defendants would allegedly cancel the opposite orders prior to execution. The DOJ and CFTC contend that such conduct allowed the defendants “to generate trading profits and avoid losses for themselves” and others, including their employer and its precious metals desk.
According to the indictment, which also relied upon electronic chat conversations between defendants and other co-conspirators (both named and unnamed) and the submission of allegedly false annual compliance certifications, these actions constituted RICO violations as well as fraud. Likewise, the civil complaint alleged that such actions violated the Commodity Exchange Act’s prohibition on spoofing, and seeks monetary penalties, injunctions, and trading and registration prohibitions.
Recently, the Northern District of Illinois denied the SEC summary judgment on its claims against a company charged with fraudulently offering and failing to register securities. United States Securities and Exchange Commission v. Webb et al. In doing so, it rejected the SEC’s argument that, pursuant to the doctrines of collateral estoppel and respondeat superior, the company’s liability for the alleged securities violations was established through the criminal conviction of the company’s founder, CEO, and chairman for wire and mail fraud. The Court’s decision emphasizes the legal necessity of establishing and giving each defendant the opportunity to defend against the claims brought against them, even if claims against companies and their officers for purported securities violations seem inextricably related.
In SEC v. Webb., No. 11 C 7152 (N.D. Ill.), the SEC alleged that InfrAegis, Inc. and its founder, CEO, and chairman, Gregory Webb, violated the Securities Act of 1933 and the Securities Exchange Act of 1934 by (1) fraudulently raising funds from investors through a false portrayal of InfrAegis’s success; and (2) failing to register its securities. A separate, criminal case was brought against Webb “based on the same underlying facts in this case,” and this civil action was stayed pending the outcome of that matter. Order and Op. at 1 (Apr. 2, 2019). After a jury returned a verdict finding Webb guilty of both wire and mail fraud, however, the SEC, having separately settled with Webb, moved for summary judgment against InfrAegis in this case.
Specifically, despite the fact that “[t]he criminal case . . . did not include a finding that InfrAegis was vicariously liable for Webb’s actions, and neither Webb nor InfrAegis were tried or found guilty of any violations of the Securities Act or the Exchange Act,” id. at 4, the SEC argued that InfrAegis was precluded “from contesting its liability on the SEC’s securities fraud claims in light of Webb’s convictions for mail and wire fraud based on the same conduct at issue in this case and Webb’s role as InfrAegis’[s] chairman, CEO, and majority owner,” id. at 5. But the Court rejected this argument. While it found that “Webb’s criminal conviction establishe[d] all the elements necessary to support his civil liability,” id. at 6 (emphasis added), the Court held that InfrAegis was not “fully represented during Webb’s [criminal] trial,” as is required to establish issue preclusion. Id. at 1. In doing so, the Court further rejected the SEC’s contention that because Webb was represented at his criminal trial and was in privity with InfrAegis, InfrAegis had a full and fair opportunity to litigate the issues presented there. The Court found that no exception “to the rule against nonparty preclusion” applied here because (1) “[a] principal-agent or fiduciary relationship at the time the alleged acts occurred” is not a recognized exception; and (2) there was no evidence that InfrAegis controlled Webb’s criminal defense “or that Webb remained an agent or fiduciary of InfrAegis at the time of his trial.” Id. at 7-8.
Moreover, while neither party disputed that the doctrine of respondeat superior could apply to securities fraud claims “where the employee acted in the scope of his employment in furtherance of the corporation’s goals,” the Court also held that the SEC could not “use respondeat superior to circumvent the . . . requirement of issue preclusion that InfrAegis have had a full and fair opportunity to litigate the issues.” Id. at 9. Thus, the Court denied the SEC’s motion for summary judgment concerning the securities fraud claims against InfrAegis.
An SEC administrative law judge recently rejected some of the SEC’s fraud charges against hedge fund manager RD Legal Capital, LLC and its owner Roni Dersovitz (“Respondents”) by finding that the SEC did not prove that Respondents made certain material misrepresentations and failed to establish that other alleged material misrepresentations were made with scienter. In the Matter of RD Legal Capital, LLC, and Roni Dersovitz, File No. 3-17342, Initial Decision (Oct. 15, 2018). While ALJ Jason S. Patil did conclude that Respondents were liable for negligence-based fraud violations, his rulings with respect to the scienter-based charges and the drastically-reduced penalties he ordered were largely a defeat for the SEC.
In July 2016, the SEC instituted proceedings alleging, among other things, that Respondents defrauded investors by misrepresenting the types of legal receivables in which two funds managed by RD Legal Capital invested. Id. at 2. In particular, the SEC alleged that Respondents violated the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 by representing that the legal receivables invested in by two of their hedge funds all arose out of binding settlement agreements or judgments and therefore posed no litigation risk, when in fact four categories of legal receivable investments “involved matters that had not settled or reached final judgment at the time of the investments, or . . . were purchased from entities other than law firms.” Id. at 9. Those four categories were: (1) “purchases of attorneys’ and plaintiffs’ receivables arising from the 1983 Beirut barracks bombing” (the “Peterson receivables”); (2) “receivables of attorney Daniel Osborn” (the “ONJ receivables”); (3) “receivables of Barry Cohen” (the “Cohen receivables”); and (4) “receivables arising out of the 2010 oil spill in the Gulf of Mexico” (the “Deepwater Horizon receivables”).
In challenging Respondents’ representations to investors, the SEC specifically focused on the statements made in Respondents’ offering memoranda, marketing materials, investor-directed materials (such as Respondents’ website), and Form ADVs, as well as their conversations with investors. However, Respondents argued “that they were permitted under the offering memoranda,” which contained “flexibility provisions,” “to make the investments challenged by the Division and, to the extent that other written or oral statements to investors were contradicted by the clear language in the offering memoranda, the terms of the offering memoranda control.” Id. at 59.
In deciding whether Respondents made material misrepresentations, Judge Patil found that he “should begin with consideration of the terms of the offering memoranda.” Id. He agreed with the SEC that those documents “gave investors the distinct impression that the Funds were invested exclusively in legal receivables from cases that were resolved by settlement, an agreement between parties, or, in some instances a judgment against a debtor—with little to no litigation risk,” and that “no offering memorandum ever advised a reader that the Funds had ever purchased a legal fee arising out of anything other than a settlement or judgment.” Id. at 59-60. Judge Patil also found that these impressions were reinforced by some of Respondents’ marketing materials and “[o]ther oral and written representations.” Id. at 62. Nevertheless, he determined that these statements were materially inaccurate only as a result of the ONJ and Cohen receivables, which presented a “different class of risks associated with contingent litigation-based receivables,” id. at 78, and found “that the Division failed to establish by a preponderance of the evidence that the statements were materially false or misleading with respect to the Peterson and Deepwater Horizon” receivables. Id. at 63.
Regarding the Deepwater Horizon receivables, Judge Patil held that “the opportunity was consistent with one of the emerging opportunities the Fund manager could reasonably take advantage of under the terms of the offering memoranda’s flexibility provision,” because, while the monies associated with these receivables were not advanced to attorneys, the settlement in that matter authorized “non-attorney representatives . . . to file claims against a settlement fund,” thus making them “something of a surrogate for law firms for purposes of the settlement process,” and otherwise, “the investments were . . . substantially similar to the core investments of the Funds.” Id. at 65-66. With respect to the Peterson receivables, which were the “[t]he focus of the Division’s case,” id. at 70, Judge Patil concluded that “[n]either the Division nor Respondents have convinced me,” and because the Division “bears the burden of proof or persuasion . . . the Division has not proved by a preponderance of the evidence that Respondents’ misrepresentations were material with respect to Peterson.” Id. at 78.
Next, Judge Patil found that, while Respondents made material misstatements concerning the ONJ and Cohen receivables, those misstatements were not made with scienter. Specifically, he reasoned that the following factors “rebut the allegation of scienter”: (1) Respondents’ provision of “quarterly ‘Independent Accountant’s Report[s] On Applying Agreed-Upon Procedures,’ which included detailed information concerning troubled assets . . . including the ONJ and Cohen investments;” (2) Respondents’ provision of “annual audited financial statements that identified the Funds’ top concentration of investments by payor;” (3) the hosting on Respondents’ website of documents “pertinent to the Funds, including the offering memoranda, subscription documents, financial statements, AUPs, and investor communications;” (4) the availability of “a detailed collection of information with respect to the legal receivables agreements;” and (5) the absence of a “policy or practice of denying or providing false information.” Id. at 80-82. In short, Judge Patil found that there was no “intent to deceive because Respondents did not attempt to hide the investments.” Id. at 81. Furthermore, he determined that Respondents’ conduct “did not rise to the level of extreme recklessness,” because, while “the most troubling misstatements were the express disclaimers of litigation risk in the” due diligence questionnaires, those questionnaires are “marketing materials, which investors should treat skeptically,” and “the misstatements were in answer to a question about the Funds’ strategy,” which Respondents testified did not include the ONJ and Cohen receivables, as they were “one-off workouts of other, strategy-compliant positions that had gone wrong.” Id. at 87. As a result of these findings, the SEC’s most serious claims—those under Section 10(b) and Rule 10(b)-5 of the Exchange Act and Section 17(a)(1) of the Securities Act—were dismissed.
However, while Judge Patil recognized that “the Division focused most of its efforts on supporting its claims requiring scienter,” he determined that the Division “did not thereby forfeit or waive its claims based on negligence.” Id. at 84. He further found that there was “sufficient evidence in the record regarding the standard of care to conclude that Respondents did not meet that standard,” and were therefore negligent in making material misrepresentations with regard to the ONJ and Cohen receivables. Id. Specifically, he concluded “that the offering memoranda language with respect to all legal receivables arising from settlements and judgments represented an inaccuracy that is inconsistent with the reasonable care a hedge fund should take when it in fact had substantial positions in receivables based on pending litigation.” Id. at 86-87. As a result, Respondents were found liable under Sections 17(a)(2) and 17(a)(3) of the Securities Act.
Because he determined that Respondents did not act with scienter and it was shown that Respondents were not unjustly enriched and that most investors actually profited from their investments, Judge Patil found that only half of the maximum per-violation civil penalties were warranted. He based the penalties assigned to Respondents on the number of documents containing “actionable misrepresentations” and concluded that RD Legal Capital and Dersovitz should be fined $575,000 and $56,250 respectively. Id. at 96-97. In doing so, he rejected the SEC’s argument that Respondents should be penalized “for each defrauded investor who testified . . . as it could be based on tactical decisions by the Division about how many witnesses to call and who was available to testify.” Id. at 96. Furthermore, Judge Patil determined that disgorgement was not warranted, finding that to award the disgorgement of over $56 million sought by the SEC “may trigger constitutional scrutiny.” Id. at 98. Finally, while he also entered a cease and desist order and suspended Dersovitz from the securities industry for six months and prohibited him from working for an investment company for the same time period, Judge Patil declined to enter the permanent industry bar sought by the SEC.
While the SEC suffered several defeats in this case, it is important to note that despite being unable to prove that the Respondents acted with scienter, the SEC was able to hold Respondents liable for negligence-based charges. Because of the SEC’s ability to bring negligence-based charges, investment advisers must be extra vigilant about their disclosures and in ensuring that their trading practices are consistent with those disclosures.
Nevertheless, ALJ Patil’s decision signals that the SEC staff cannot rely on its “home court advantage” in every case. It also demonstrates that the SEC has a significant burden in proving “scienter” under Section 10(b) and Section 17(a)(1). It is also important that ALJ Patil recognized that the lack of scienter drastically affected the financial and non-financial remedies imposed against the Respondents.
Acting SEC Chairman Michael Piwowar has apparently revised the staff’s ability to subpoena records and investigative testimony (“formal order authority”) by returning the authority to grant formal order authority to the agency’s Director of Enforcement. While the SEC has not formally recognized this policy shift, multiple sources, including Law360 and the Wall Street Journal, have reported that Acting Chair Piwowar has recently implemented this change, which revokes the delegated authority to regional directors and enforcement associate directors to approve the staff’s requests for formal order authority.
In 2009, under Chair Mary Schapiro and as part of certain initiatives to enhance enforcement’s capabilities in the aftermath of the financial crisis, the SEC delegated its authority to authorize formal order authority to the Director of Enforcement. The Director of Enforcement, in turn, delegated this authority to regional directors and enforcement associate directors. As a result, the staff could, within an hour (when necessary) obtain formal order authority, as compared to the days, weeks, or at times months, that it had historically taken to obtain formal order authority from the Commission. Not unexpectedly, the number of formal investigations opened by the staff dramatically increased.
Acting Chair Piwowar’s recent move eliminates the second layer of delegation by limiting the 2009 delegated authority to the Director of Enforcement. While the effect of this change on the number of SEC investigations remains uncertain, multiple sources report that Acting Chair Piwowar enacted the policy not to reduce that number, but to bring greater oversight and consistency to the investigation process. Further, while he is not authorized to take the step alone, as it would require a vote of the Commission which is currently comprised of only two members, Acting Chair Piwowar and Commissioner Kara Stein, the acting chair has asked the SEC’s general counsel to consider whether the agency should further restrict formal order authority by returning the power to grant it to the SEC Commissioners. Thus, at Acting Chair Piwowar’s direction, the SEC is considering a return to the pre-2009 formal order authority review and approval process.
The revocation of the regional and associate directors’ delegated ability to approve formal order authority is the latest action taken by Acting Chair Piwowar, who stepped in as acting chairman after former Chair Mary Jo White stepped down at the conclusion of the Obama administration. His actions have included requesting that all authorities granted to staff members be reviewed and that public disclosure rules required by Dodd-Frank be reconsidered. Such actions indicate efforts to begin the reshaping of the agency as it awaits the confirmation of President Trump’s nomination for chairman, Jay Clayton.
The 10th Circuit recently found that the SEC’s use of Administrative Law Judges (“ALJs”) violates the Appointments Clause of the Constitution, creating a split amongst federal appellate courts and making it likely the Supreme Court will weigh in on the controversy that has been building over the last two years. More specifically, the court, in Bandimere v. SEC, held in a 2-1 decision that an SEC Administrative Law Judge is an inferior officer who must be constitutionally appointed.
Bandimere, a respondent in an SEC administrative proceeding, filed a petition for review after the SEC affirmed an initial decision entered by an ALJ that found Bandimere liable for violating a number of securities laws and imposed civil penalties against him. Bandimere raised a constitutional argument before the SEC, contending that the ALJ who presided over his hearing “was an inferior officer who had not been appointed under the Appointments Clause.” Op. at 3. The SEC rejected this argument, conceding that its ALJs are not constitutionally appointed, but ruling that they are not inferior officers subject to the requirements of the Appointments Clause.
Diverging from other federal courts, the 10th Circuit set aside the SEC’s opinion affirming the ALJ’s decision, holding that SEC ALJs are inferior officers who must be constitutionally appointed. In doing so, the court relied almost exclusively on Freytag v. Comm’r of Internal Revenue, 501 U.S. 868 (1991), in which “a unanimous Supreme Court concluded [that Tax Court] STJs [special trial judges] were inferior officers.” Op. at 13–14. The Bandimere court found that “Freytag held that [special trial judges appointed by the Tax Court] were inferior officers based on three characteristics”: (1) their position was “established by law”; (2) “the[ir] duties, salary, and means of appointment . . . are specified by statute”; and (3) they “exercise significant discretion” in “carrying out . . . important functions.” Op. at 18 (quoting Freytag, 501 U.S. at 881–82). The court concluded that like STJs, SEC ALJs possess all three characteristics. Specifically, the court found that the ALJ position was established by the APA and cited various statutes that “set forth SEC ALJs’ duties, salaries, and means of appointment.” Op. at 18. As to the third factor, the court focused on an SEC ALJ’s ability “to shape the administrative record by taking testimony, regulating document production and depositions, ruling on the admissibility of evidence, receiving evidence, ruling on dispositive and procedural motions, issuing subpoenas, and presiding over trial-like hearings.” Op. at 19. The court also highlighted an SEC ALJ’s authority to render initial decisions, determine liability, impose sanctions, enter default judgments, and modify or enforce temporary sanctions imposed by the SEC. Thus, because it determined that all three factors were satisfied, the court ruled that SEC ALJs “are inferior officers who must be appointed in conformity with the Appointments Clause.” Op. at 22. Because they are not constitutionally appointed, as the SEC conceded, the court held that SEC ALJs hold their office in violation of the Constitution.
In reaching this conclusion, the Bandimere court rejected the SEC’s position that its “ALJs are not inferior officers because they cannot render final decisions and the agency retains authority to review ALJs’ decisions de novo” and disagreed with the D.C. Circuit’s holding in Raymond J. Lucia Cos., Inc. v. SEC, 832 F.3d 277 (D.C. Cir. 2016), which used the same reasoning to conclude that SEC ALJs are employees rather than inferior officers. Op. at 23–24. The Bandimere court found that this argument misreads Freytag and “place[s] undue weight on final decision-making authority.” Op. at 24. The court held that while “[f]inal decision-making power is relevant in determining whether a public servant exercises significant authority . . . that does not mean every inferior officer must possess final decision-making power.” Op. at 28. Rather, the proper focus is the extent of discretion exercised and the importance of the duties carried out by an ALJ, both of which, the court found, weighed in favor of finding that SEC ALJs are inferior officers.
Similarly, the court also refuted the dissent’s attempt to distinguish SEC ALJs from Tax Court STJs by contending that unlike those of SEC ALJs, STJs’ initial decisions were binding even when the STJs did not technically enter a final decision. Contrary to the dissent, the majority found that the Tax Court did not merely rubber stamp STJs’ initial decisions, but rather ultimately “adopted opinions they had a hand in supervising and producing.” Op. at 34. Moreover, the majority found that approximately ninety percent of SEC ALJs’ initial decisions “become final without any review or revision from an SEC Commissioner.” Op. at 35.
The dissent also expressed concern that the majority’s decision “effectively rendered invalid thousands of administrative actions.” Dissent at 11. But the majority disagreed, and stated in response that “[n]othing in this opinion should be read to answer any but the precise question before the court: whether SEC ALJs are employees or inferior officers. Questions about officer removal, officer status of other agencies’ ALJs, civil service protection, rulemaking, and retroactivity . . . are not issues on appeal and have not been briefed by the parties.” Op. at 36.
Furthermore, Judge Briscoe’s concurrence suggests the dissent’s concern that the majority’s decision will have a wide-sweeping detrimental effect because it calls into question the constitutionality of past decisions rendered by ALJs is likely overstated. Citing Free Enter. Fund v. Public Co. Accounting Oversight Bd., 561 U.S. 477 (2010), the concurrence highlighted that “courts normally are required to afford the minimum relief necessary to bring administrative overreach in line with the Constitution.” Concurrence at 4. For example, in Free Enterprise Fund, the Supreme Court found the SEC’s Public Company Accounting Oversight Board (“PCAOB”) created by Sarbanes-Oxley violated Article II because the Act provided for dual for-cause limitations on the removal of board members. Specifically, PCAOB members could not be removed by the SEC except for good cause shown, and SEC Commissioners themselves cannot be removed except for inefficiency, neglect of duty, or malfeasance in office. The Supreme Court noted that “such multilevel protection from removal is contrary to Article II’s vesting of the executive power in the President” and that the President “cannot ‘take Care that the Laws be faithfully executed’ if he cannot oversee the faithfulness of the officers who execute them.” Free Enter. Fund, 561 U.S. at 484. The Supreme Court, however, did not find the PCAOB unconstitutional; it merely severed the for-cause removal provision of the PCAOB appointment clause, leaving the Board itself intact. Moreover, the Court rejected the petitioner’s argument that the constitutional infirmity made all of the Board’s prior activity unconstitutional.
In addition, this principle was recently applied in PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1 (D.C. Cir. 2016), in which the D.C. Circuit, rather than abrogating the entire Consumer Financial Protection Bureau (“CFPB”), “struck the single offending clause from the CFPB’s implementing legislation [the Dodd-Frank Act]” and simply altered the structure of the CFPB so that it conformed with constitutional requirements. Concurrence at 5. As an initial matter, the D.C. Circuit found that the CFPB’s construction as an independent agency led by a single Director (as opposed to a typical multi-member board or commission) who was removable by the President only for cause violated Article II of the Constitution because the Director exercised significant executive power largely unchecked. That is, the court found that the CFPB was “unconstitutionally structured” because it lacked the “critical substitute check on the excesses of any individual independent agency head” that a traditional multi-member structure would provide. PHH, 839 F.3d at 8. But rather than “shut down the entire CFPB . . . [t]o remedy the constitutional flaw,” the court “simply sever[ed] the statute’s unconstitutional for-cause provision from the remainder of the statute.” Id. The result was that the President was given “the power to remove the Director at will, and to supervise and direct the Director” as the head of an executive agency without otherwise disturbing “the ongoing operations of the CFPB” or its ability to uphold previously entered orders. Id. at 8, 39.
These decisions suggest that even if the Supreme Court agrees with the Bandimere decision, the probable remedy will be to modify the unconstitutional characteristics of the SEC ALJ structure. For example, it may consider altering certain conditions of the ALJs’ employment relationship. See Concurrence at 5–6. Moreover, as the dissent recognized, the Supreme Court could also make “an explicit statement that the opinion does not apply retroactively.” Dissent at 15 n.9.
Since 2010, in the wake of Dodd-Frank, the SEC has consistently increased its use of administrative proceedings. It seems likely now that there is a circuit split, and Supreme Court review seems certain, the SEC may well scale back its reliance on administrative proceedings until this constitutional issue is settled.