Reference no: EM133192168

Part A: Debate This:

Because an administrative law judge (ALJ) acts as both judge and jury, there should always be at least three ALJs in each administrative hearing.

Debate This: Admin Law

Chapter 37, p. 888

Assume that the Securities and Exchange Commission (SEC) has a rule under which it enforces statutory provisions prohibiting insider trading only when the insiders make monetary profits for themselves. Then the SEC makes a new rule, declaring that it has the statutory authority to bring enforcement actions against individuals even if they did not personally profit from the insider trading. The SEC simply announces the new rule without conducting a rulemaking proceeding. A stockbrokerage firm objects and says that the new rule was unlawfully developed without opportunity for public comment. The brokerage firm challenges the rule in an action that ultimately is reviewed by a federal appellate court. Using the information presented in the chapter, answer the following questions.

1.Is the SEC an executive agency or an independent regulatory agency? Does it matter to the out-come of this dispute? Explain.

2.Suppose that the SEC asserts that it has always had the statutory authority to pursue persons for insider trading regardless of whether they personally profited from the transaction. This is the only argument the SEC makes to justify changing its enforcement rules. Would a court be likely to find that the SEC's action was arbitrary and capricious under the Administrative Procedure Act (APA)? Why or why not?

3.Would a court be likely to give Chevron deference to the SEC's interpretation of the law on insider trading? Why or why not?

4.Now assume that a court finds that the new rule is merely "interpretive." What effect would this determination have on whether the SEC had to follow the APA's rulemaking procedures?

PART B write a comment/ opinion about this post

The ALJ should have at least three judges. The argument presented is that there should always be at least three administrative law judges in any hearing to ensure the impartiality and fairness of their decisions (Miller, 2019). Administrative law judges are "required to remove their personal opinions from the decision-making process." To avoid bias in a hearing, there has to be a balance of opinions. However, an administrative law judge can both decide and convict (as part of the jury); it needs all three ALJs present for this validity.

The SEC is a sovereign agency with specific characteristics that set it apart from other agencies. It is an independent regulatory agency headed by five commissioners, each serving a specific term. The SEC's practices are governed by the Administrative Procedure Act (APA) and other related laws. Under § 3(a)(1) of the APA, every rule or order promulgated by any agency shall be made on the record after the opportunity for an agency hearing [which] shall include a reasonable opportunity for interested persons to submit data, views, or arguments. Courts have ruled that this statute does not apply to actions taken at open committee meetings or certain internal agencies' internal decisions (Miller, 2019). Accordingly, only informal or "ad hoc" rulemaking conducted in writing is subject to review under the APA.

The APA requires that an administrative agency's rules be "arbitrary and capricious" if they are not the result of a reasoned decision-making process (Miller, 2019). The agency must engage in notice and comment rulemaking if it wishes to change its rules significantly. In this case, the SEC did not engage in a thorough and careful consideration of whether it had ever had the authority to pursue persons for insider trading regardless of whether they profit from the transaction. On the contrary, it has made clear that it wants to pursue this policy without further consideration because its prior understanding was contrary to its current view.

In light of these events, this court should deference to the SEC's interpretation despite Chevron's argument for why it should not be given deference. Courts must give deference to interpretations made by agencies unless they are arbitrary and capricious under a certain level of scrutiny.

First, it would be improper for the SEC to change its interpretation without following the APA's rulemaking procedures. Second, if the court determined that such a new rule was merely an "interpretative" change with no substantive effect on the SEC's powers, then for the SEC to make this kind of change, it would have needed to follow APA procedures because it contradicted its old interpretation.