No.

21-1239

In The

___________
SECURITIES AND EXCHANGE COMMISSION, ET AL.,
Petitioners,
v.

MICHELLE COCHRAN,
Respondent.
___________
On Writ of Certiorari
to the United States Court of Appeals for the
Fifth Circuit
___________
BRIEF OF THE CATO INSTITUTE AS AMICUS
CURIAE IN SUPPORT OF RESPONDENT
___________
Clark M. Neily III
Counsel of Record
Jennifer J. Schulp
William M. Yeatman*
CATO INSTITUTE
1000 Mass. Ave., NW
Washington, DC 20001
(202) 842-0200
[email protected]

*Admitted to the D.C. Bar

under D.C. App. R. 46-A.
Supervised by a D.C. Bar
July 7, 2022 member.
 i

QUESTION PRESENTED
Whether a federal district court has jurisdiction to
hear a suit in which the respondent in an ongoing
Securities and Exchange Commission administrative
proceeding seeks to enjoin that proceeding, based on an
alleged constitutional defect in the statutory provisions
that govern the removal of the administrative law judge
who will conduct the proceeding.
 ii

TABLE OF CONTENTS
Page

QUESTION PRESENTED ......................................... i

TABLE OF CONTENTS ............................................ ii
TABLE OF AUTHORITIES ..................................... iii
INTERESTS OF AMICUS CURIAE ......................... 1
INTRODUCTION AND SUMMARY OF
ARGUMENT ......................................................... 1
ARGUMENT
EVENTUAL REVIEW IS NOT MEANINGFUL
REVIEW ................................................................ 4
CONCLUSION ......................................................... 11
 iii

TABLE OF AUTHORITIES
Page(s)
Cases
Free Enter. Fund v. Pub. Co. Acct. Oversight
Bd., 561 U.S. 477 (2010)................................... 4, 11
Lucia v. SEC, 138 S. Ct. 2044 (June 21,
2018)........................................................................ 8
United States v. Arthrex, Inc., 141 S. Ct.
1979 (2021) ............................................................. 6
Regulations
17 C.F.R. § § 201.900 ................................................. 7
17 C.F.R. § 201.155 .................................................... 5
17 C.F.R. § 201.233 .................................................... 2
17 C.F.R. § 201.360 ................................................ 6, 7
17 C.F.R. § 201.410 .................................................... 7
17 C.F.R. § 201.411 .................................................... 7
17 C.F.R. § 201.451 .................................................... 7
17 C.F.R. § 201.542 .................................................... 7
60 Fed. Reg. 32,738, 32,738 (June 23, 1995) ............. 4
68 Fed. Reg. 35,787, 35,787 (July 17, 2003).............. 4
81 Fed. Reg. 50,212, 50,213 (July 29, 2016).............. 6
Other Authorities
Alexandre S. Clug et al., Exchange Act
Release No. 10886, Admin. Proc. File No.
3-16318 (Nov. 9, 2020) ........................................ 3, 8
 iv

Anton & Chia, LLP & Gregory A. Wahl et al.,

Exchange Act Release No. 82206, Admin.
Proc. File No. 3-18292 (Dec. 4, 2017) ..................... 3
Benjamin Bain, U.S. SEC Republican
Commissioner Elad Roisman Plans to Step
Down by January, Bloomberg (Dec. 20,
2021), https://tinyurl.com/2mhwnt9a .................. 10
Christopher M. Gibson, Exchange Act
Release No. 77466, Admin. Proc. File No.
3-17184 (Mar. 29, 2016) ......................................... 3
David Zaring, Enforcement Discretion at the
SEC, 94 Tex. L. Rev. 1155 (2016) .......................... 6
Digital Brand Media & Mktg. Grp., Inc. &
Intellicell Biosciences, Inc., Exchange Act
Release No. 80701, Admin. Proc. File No.
3-17990 ( May 16, 2017) ......................................... 3
Edward M. Daspin et al., Exchange Act
Release No. 74799, Admin. Proc. File No.
3-16509 (Apr. 23, 2015) .......................................... 3
Equity Trust Co., Exchange Act Release No.
10420 (Sept. 28, 2017) ............................................ 8
James A. Winkelmann, Sr. & Blue Ocean
Portfolios, LLC, Exchange Act Release No.
77862, Admin. Proc. No. 3-17253 (May 19,
2016)........................................................................ 3
Jed. S. Rakoff, Keynote Address at PLI
Securities Regulation Institute: Is the
S.E.C. Becoming a Law Unto Itself?, (Nov.
5, 2014).................................................................... 2
John Thomas Capital Mgmt. Grp. LLC, d/b/a
Patriot 28 LLC et al., Exchange Act
 v

Release No. 10834, Admin. Proc. File No.

3-15255 (Sept. 4, 2020) ........................................... 8
Joseph S. Amundsen et al., Exchange Act
Release No. 85081, Admin. Proc. File No.
3-18994 (Feb. 8, 2019) ............................................ 3
Justin Schardin & Ashmi Sheth, Bipartisan
Policy Center, Financial Regulators
Struggling with Longer Vacancies at the
Top 2 (2017), https://tinyurl.com/5e4a23ev ........... 9
Lauries Bebo & John Buono, Exchange Act
Release No. 73722, Admin. Proc. File No.
3-16293 (Dec. 3, 2014) ............................................ 3
Mark Feathers, Exchange Act Release No.
71565, Admin. Proc. File No. 3-15755 (Feb.
18, 2014) .................................................................. 3
Matthew R. Rossi & SJL Capital, LLC,
Exchange Act Release No. 85683, Admin.
Proc. File No. 3-19145 (Apr. 17, 2019) ................... 3
Pending Admin. Procs., Exchange Act
Release No. 10440 (Nov. 30, 2017)......................... 9
Pending Admin. Procs., Exchange Act
Release No. 82178 (Nov. 30, 2017)......................... 9
Pending Admin. Procs., Investment Advisers
Act Release No. 4816 (Nov. 30, 2017) ................... 9
Pending Admin. Procs., Investment
Company Act Release No. 32929 (Nov. 30,
2017)........................................................................ 9
Report on Administrative Proceedings for the
Period April 1, 2020 through September
30, 2020, Exchange Act Release No. 90289
(Oct. 20, 2020) ......................................................... 5
 vi

Report on Administrative Proceedings for the

Period October 1, 2018 through March 31,
2019, Exchange Act Release No. 85750
(Apr. 30, 2019) ........................................................ 5
Report on Administrative Proceedings for the
Period October 1, 2021 through March 31,
2022, Exchange Act Release No. 94820
(Apr. 29, 2022) .................................................... 5, 8
Robare Grp., Ltd. et al., Exchange Act
Release No. 72950, Admin. Proc. File No.
3-16047 (Sept. 2, 2014) ........................................... 3
Saving2Retire, LLC & Marian P. Young,
Investment Advisors Act Release No. 4457,
Admin. Proc. File No. 3-17352 (July 19,
2016)........................................................................ 3
Taylor Dalton, The Trajectory of Civil Cases
in Federal Court, Above the Law (May 28,
2021), https://tinyurl.com/ycyctbmp ...................... 3
Ted Knutson, SEC Stretched Thin Chair
Tells Congressional Appropriators, Forbes
(May 26, 2022),
https://tinyurl.com/3r6sekx3 ................................ 10
Traci J. Anderson et al., Exchange Act
Release No. 74273, Admin. Proc. File No.
3-16386 (Feb. 13, 2015) .......................................... 3
U.S. Chamber of Commerce Center for
Capital Markets Competitiveness,
Examining U.S. Securities and Exchange
Commission Enforcement:
Recommendations on Current Process and
Practices 16 (2015) ................................................. 5
 1

INTERESTS OF AMICUS CURIAE1

The Cato Institute is a nonpartisan public-policy
research foundation established in 1977 and
dedicated to advancing the principles of individual
liberty, free markets, and limited government. Cato’s
Center for Monetary and Financial Alternatives
reveals the shortcomings of today’s monetary and
financial regulatory systems and identifies and
promotes alternatives more conducive to a stable,
flourishing, and free society. Cato’s Robert A. Levy
Center for Constitutional Studies was established in
1989 to help restore the principles of limited
constitutional government that are the foundation of
liberty. Toward those ends, Cato publishes books and
studies, conducts conferences, and produces the
annual Cato Supreme Court Review. Cato has a
strong interest in enforcing separation-of-powers
principles and protecting against threats to federal
court access when citizens have legitimate complaints
about unconstitutional administrative proceedings.
INTRODUCTION AND
SUMMARY OF ARGUMENT
Congress has delegated ever greater judicial
authority to the Securities and Exchange Commission
(“SEC”) because the agency’s in-house courts are
supposed to be efficient. See Pet. App. 75a (Oldham,
J., concurring) (explaining that SEC’s architects
believed “agency adjudications were more efficient
than court cases”); see also Jed. S. Rakoff, Keynote
Address at PLI Securities Regulation Institute: Is the

1 All parties consented to the filing of this brief. No party’s

counsel authored this brief in any part and amici alone funded
its preparation and submission.
 2

S.E.C. Becoming a Law Unto Itself?, (Nov. 5, 2014)

(observing that “a claim of greater efficiency” is the
“stated rationale” for the growth of SEC’s adjudicative
functions since agency’s inception). On paper, at least,
there is every reason to expect that the agency process
would be streamlined. Discovery is highly limited,
and there is no jury. See, e.g., 17 C.F.R. § 201.233(a)(1)
(affording a single respondent only three depositions).
Through its combination of prosecutorial and
adjudicative functions, the SEC’s very structure is
designed for efficiency, if not fairness.
In practice, however, the agency’s adjudications of
complex matters are grossly inefficient, as
demonstrated by the respondent’s plight. She has
been enmeshed in an administrative proceeding for
more than six years—not including a lengthy
investigation by the SEC’s enforcement staff—and
now the government asks this Court to have her start
the entire administrative process anew. Despite
ruling against the respondent, the district court below
found it “deeply concern[ing]” that she would endure
yet another round of (potentially unconstitutional)
proceedings, “undoubtedly at considerable expense
and stress.” Pet. App. 143a.
Alas, such extreme delays are common for anyone
who risks defending themselves from an SEC
enforcement actions on the agency’s home court.
There are, for example, thirteen pending enforcement
proceedings on the five-member Commission’s
appellate review docket—seven of them commenced,
 3

like the respondent’s case, more than six years ago.2

The mean and median age of these cases are 2,177
days and 2,291 days, respectively. By comparison,
federal civil cases disposed of through judgments
obtained via jury verdict had an average case
duration of 771 days. See Taylor Dalton, The
Trajectory of Civil Cases in Federal Court, Above the
Law (May 28, 2021).3
The SEC’s sluggishness speaks squarely to the
question presented. In evaluating implied preclusion

2Mark Feathers, Exchange Act Release No. 71565, Admin. Proc.

File No. 3-15755 (Feb. 18, 2014); Robare Grp., Ltd. et al.,
Exchange Act Release No. 72950, Admin. Proc. File No. 3-16047
(Sept. 2, 2014); Lauries Bebo & John Buono, Exchange Act
Release No. 73722, Admin. Proc. File No. 3-16293 (Dec. 3, 2014);
Alexandre S. Clug et al., Exchange Act Release No. 10886,
Admin. Proc. File No. 3-16318 (Dec. 16, 2014); Traci J. Anderson
et al., Exchange Act Release No. 74273, Admin. Proc. File No. 3-
16386 (Feb. 13, 2015); Edward M. Daspin et al., Exchange Act
Release No. 74799, Admin. Proc. File No. 3-16509 (Apr. 23,
2015); Christopher M. Gibson, Exchange Act Release No. 77466,
Admin. Proc. File No. 3-17184 (Mar. 29, 2016); James A.
Winkelmann, Sr. & Blue Ocean Portfolios, LLC, Exchange Act
Release No. 77862, Admin. Proc. No. 3-17253 (May 19, 2016);
Saving2Retire, LLC & Marian P. Young, Investment Advisors
Act Release No. 4457, Admin. Proc. File No. 3-17352 (July 19,
2016); Digital Brand Media & Mktg. Grp., Inc. & Intellicell
Biosciences, Inc., Exchange Act Release No. 80701, Admin. Proc.
File No. 3-17990 ( May 16, 2017); Anton & Chia, LLP & Gregory
A. Wahl et al., Exchange Act Release No. 82206, Admin. Proc.
File No. 3-18292 (Dec. 4, 2017); Joseph S. Amundsen et al.,
Exchange Act Release No. 85081, Admin. Proc. File No. 3-18994
(Feb. 8, 2019); Matthew R. Rossi & SJL Capital, LLC, Exchange
Act Release No. 85683, Admin. Proc. File No. 3-19145 (Apr. 17,
2019).
3 Available at https://tinyurl.com/ycyctbmp.
 4

defenses, this Court presumes “Congress does not

intend to limit jurisdiction if a finding of preclusion
could foreclose all meaningful judicial review.” Free
Enter. Fund v. Pub. Co. Acct. Oversight Bd., 561 U.S.
477, 489 (2010) (citations and quotations omitted).
Eventual review, at some point in the remote future,
is not meaningful review. The respondent faces a
Hobbesian dilemma. She can default on the
underlying allegations, thereby achieving some
semblance of efficiency before the SEC’s
administrative process. Or she can contest her guilt,
in which case she can count on spending years more
before the SEC’s interminable adjudicative regime.
This Court, however, “do[es] not require plaintiffs to
bet the farm . . . by taking the violative action before
testing the validity of the law.” Id. at 490 (quotations
and citations omitted). Accordingly, the Court should
affirm and allow the respondent her day in federal
court to challenge the constitutionality of the SEC’s
protracted proceedings.
ARGUMENT

EVENTUAL REVIEW IS NOT MEANINGFUL

REVIEW
In 1995, to ‘‘better facilitate full, fair and efficient
proceedings,” the SEC established nonbinding
deadlines to govern its administrative proceedings.
See 60 Fed. Reg. 32,738, 32,738 (June 23, 1995). Since
then, these deadlines have been honored primarily in
the breach. In 2003, the agency conceded that “the
Commission and its administrative law judges have
generally failed to meet these goals.” 68 Fed. Reg.
35,787, 35,787 (July 17, 2003). And a 2015 study
 5

found that only two of fifteen surveyed SEC opinions

were issued within the guidelines period. See U.S.
Chamber of Commerce Center for Capital Markets
Competitiveness, Examining U.S. Securities and
Exchange Commission Enforcement:
Recommendations on Current Process and Practices
16 (2015). According to the SEC’s own data, the
Commission hasn’t published a timely opinion on an
enforcement action since at least September 30, 2017.
See Report on Administrative Proceedings for the
Period October 1, 2021 through March 31, 2022,
Exchange Act Release No. 94820 (Apr. 29, 2022);
Report on Administrative Proceedings for the Period
April 1, 2020 through September 30, 2020, Exchange
Act Release No. 90289 (Oct. 20, 2020); Report on
Administrative Proceedings for the Period October 1,
2018 through March 31, 2019, Exchange Act Release
No. 85750 (Apr. 30, 2019).
To be sure, these time constraints typically are
beside the point, as most SEC proceedings do not
involve adversarial litigation culminating in a
judgment by the agency adjudicator. The SEC prefers
to settle and achieves this result for almost all its
enforcement actions. Pet. App. 80-81 (Oldham, J.,
concurring) (describing the SEC’s settlements policy
and citing research showing that “during the period
2002-2014 the SEC’s settlement rate remained
constant at about 98%”). Of those cases that don’t
settle, the agency commonly secures default
judgments against defendants that don’t participate
in the proceedings. See 17 C.F.R. § 201.155. Even
among non-settling, non-default proceedings, most
are “follow on” actions, where the agency seeks
 6

additional penalties based on facts that already had

been established by a civil or criminal action in a state
or federal court. David Zaring, Enforcement
Discretion at the SEC, 94 Tex. L. Rev. 1155, 1181
(2016) (describing follow on proceedings as “ordinarily
straightforward”). The upshot is that only a small
fraction of agency enforcement actions entail
adversarial litigation over facts and law.
For such complex cases, the SEC’s non-binding
guidelines require administrative law judges (“ALJs”)
to schedule a hearing within ten months of the
initiation of proceedings. See 17 C.F.R. §
201.360(a)(2)(ii). After the hearing, the agency
“contemplate[s]” that it will take “approximately two
months” for the submission of post-hearing briefs. 81
Fed. Reg. 50,212, 50,213 (July 29, 2016). Finally, the
ALJ’s initial decision is due 120 days from the
completion of post-hearing briefing See 17 C.F.R. §
201.360(a)(2)(i). Adding it all up, the ALJs have
approximately sixteen months to try contested cases.
Of course, the SEC “follow[s] the almost-universal
model of adjudication in the Executive Branch,”
whereby decisions by inferior adjudicative officers are
subject to review by principal officers on the
Commission. See United States v. Arthrex, Inc., 141 S.
Ct. 1979, 1987 (2021); see also id. at 1284 (“The
Administrative Procedure Act, from its inception,
authorized agency heads to review such decisions.”).
After the ALJ’s initial decision, therefore, a final
judgment only occurs when the Commission issues an
 7

opinion on appeal or a notice of finality. See 17 C.F.R.

§§ 201.360(d), 201.410.
Although there is no statutorily prescribed
standard for Commission review of ALJ decisions, the
agency’s Rules of Practice effectively provide for de
novo review by allowing the Commission to hold
additional hearings and expand the evidentiary
record. See 17 C.F.R. §§ 201.451, 201.542. Ultimately,
the Commission “may affirm, reverse, modify, set
aside or remand … in whole or in part, an initial
decision by a hearing officer.” 17 C.F.R. § 201.411(a).
For complex cases, the Commission has ten months to
review the ALJ’s decision, but the clock does not start
until briefing is completed and the Commission has
heard oral arguments, if any. 17 C.F.R. § §
201.900(a)(iii).
Putting it all together, the SEC has about twenty-
six months to conduct an administrative proceeding,
in addition to however long the Commission takes to
conduct a hearing and full briefing. These are
generous targets. Even if the Commission aced its
deadlines, the agency’s proceedings would be no more
efficient—and likely less so—than judgments
obtained through a federal court proceeding
culminating in a jury verdict, which, again, average
771 days, or just over twenty-five months, in duration.
Still, the SEC has failed to meet even these permissive
timelines, though the lion’s share of blame does not
rest with the agency’s ALJs, who, for the most part,
either meet or come close to meeting their target
deadlines. See, e.g., Report on Administrative
Proceedings for the Period October 1, 2021 through
 8

March 31, 2022, Exchange Act Release No. 94820

(Apr. 29, 2022) (finding that ALJs issued ten initial
decisions since October 1, 2020, of which six were
issued timely). The bottleneck instead occurs with the
Commission’s appellate role. Over the last five years,
the SEC has issued only three opinions involving
agency enforcement actions. Alexandre S. Clug et al.,
Exchange Act Release No. 10886, Admin. Proc. File
No. 3-16318 (Nov. 9, 2020); John Thomas Capital
Mgmt. Grp. LLC, d/b/a Patriot 28 LLC et al.,
Exchange Act Release No. 10834, Admin. Proc. File
No. 3-15255 (Sept. 4, 2020); Equity Trust Co.,
Exchange Act Release No. 10420 (Sept. 28, 2017).
Meanwhile, the agency’s backlog has grown to
thirteen cases, and the average pending proceeding is
more than six years old, as discussed above.
It is worth elaborating why the wheels of “justice”
churn so slowly at the SEC. The Supreme Court’s
decision in Lucia of course contributed to the agency’s
dilatory performance. See Lucia v. SEC, 138 S. Ct.
2044, 2055 (June 21, 2018) (remanding
constitutionally defective administrative proceeding
back to SEC for a new “hearing before a properly
appointed” official). But Lucia’s fallout is by no means
the sole or even predominant cause of the SEC’s
inefficiency. Seven of the 13 pending proceedings
before the Commission didn’t involve a second ALJ
proceeding, either because the parties waived such
 9

procedures, or because a hearing hadn’t occurred by

the time Lucia was decided.4
Perhaps the most significant reason for the
Commission’s chronic inefficiency involves the SEC’s
inability to operate with a full slate of five
commissioners. Due to evolving institutional customs,
“[l]ong-running vacancies have become more common
at independent financial regulatory agencies.” Justin
Schardin & Ashmi Sheth, Bipartisan Policy Center,
Financial Regulators Struggling with Longer
Vacancies at the Top 2 (2017). 5 For almost four
months in early 2017, the agency had only two
commissioners—a bare quorum. Work ground to a
halt because “one commissioner can effectively stop
the SEC from acting by simply not attending a
meeting.” Id. at 12. More generally, longer vacancies
on the Commission mean less agency capacity to
complete work.
At the same time, fewer commissioners complete
their five-year terms. See, e.g., Benjamin Bain, U.S.
SEC Republican Commissioner Elad Roisman Plans

4Also, the agency contributed to disruption through an ill-fated

effort to preemptively address a possible adverse outcome in
Lucia by having properly appointed ALJs “ratify” the decisions
they had made when they were unconstitutionally appointed.
See Pending Admin. Procs., Exchange Act Release No. 10440,
Exchange Act Release No. 82178, Investment Advisers Act
Release No. 4816, Investment Company Act Release No. 32929
(Nov. 30, 2017). These ratification actions, involving months of
work, were obviated when this Court held that the proper
remedy was a new proceeding before a new judge, rather than
ratification by the same judge.
5 Available at https://tinyurl.com/5e4a23ev.
 10

to Step Down by January, Bloomberg (Dec. 20, 2021).6

(reporting on Commissioner Roisman’s resignation
more than one year before his term expired). Since
2020, there have been four different chairmen
helming the agency, two of whom were designated as
acting chairman. There are significant costs
associated with turnover of the sort that has plagued
the SEC, including the time it takes time for incoming
staff to get up to speed on the agency’s dockets.
Budget constraints are a further cause for delay.
Like all agencies, the SEC has limited resources. With
the passage of the Dodd-Frank Act in 2010, the
agency’s adjudicative authority increased
significantly, leading to an increased administrative
burden. Just last May, Chairman Gary Gensler told
congressional overseers that, “The SEC has not grown
to meet the needs of the 2020s.” Ted Knutson, SEC
Stretched Thin Chair Tells Congressional
Appropriators, Forbes (May 26, 2022). 7

Regardless of why, the SEC’s in-house courts, at

their theoretical best, are no more efficient than civil
proceedings in federal court, and they are
significantly less so in practice. In combination, the
harms inflicted on litigants by dilatory agency
adjudications—the protracted delays, the associated
expenses, and the attendant anxiety—must surely
amount to irreparable harm. The respondent is thus
caught in a Catch-22: Either she “bet[s] the farm” on
her constitutional claims by defaulting on the

6 Available at https://tinyurl.com/2mhwnt9a.
7 Available at https://tinyurl.com/3r6sekx3.
 11

underlying allegations, and thereby “wins” her day in

federal court to challenge the constitutionality of the
agency’s proceeding; or she continues to litigate in the
agency proceeding, which has lasted for more than six
years so far and with no plausible end in sight. See
Free Enter. Fund, 561 U.S. at 490. That is a choice
worthy of Camus or Kafka, not America.
CONCLUSION
For the above reasons, the judgment below should
be affirmed.

Respectfully submitted,

Clark M. Neily III

Counsel of Record
Jennifer J. Schulp
William M. Yeatman*
CATO INSTITUTE
1000 Mass. Ave., NW
Washington, DC 20001
(202) 842-0200
[email protected]

*Admitted to the D.C.

Bar under D.C. App. R.
46-A. Supervised by a
D.C. Bar member.

July 7, 2022