The SEC adjudication process is facing another constitutional legitimacy crisis. Back in 2018, the Supreme Court ruled that SEC Administrative Law Judges (ALJs) are inferior officers and were therefore improperly appointed. However, the Supreme Court declined to decide whether the ALJs were unconstitutionally insulated because of their dual-layered tenure protection. This question has only one answer: yes. Supreme Court precedent from 2010 speaks directly on this issue. The Solicitor General later conceded this point when arguing Lucia v. SEC in 2018. However, a full two years later, the SEC is still trying defendants in front of unconstitutionally protected ALJs. We must ask why.
The answer is that Congress leaves SEC prosecutors little choice. The SEC cannot remedy the issue without Congress passing a bill that changes the protection of ALJs. By forcing the SEC to litigate an untenable position, Congress robs the SEC of institutional legitimacy in its enforcement proceedings, which has already been questioned by administrative law scholars.
Unlike when the Supreme Court ruled in 2018 that SEC ALJs were appointed unconstitutionally, the SEC is powerless to fix the defects in its ALJ’s protections. Only an act of Congress or a ruling by a court could strip away the ALJ’s dual-layer protection. The SEC’s inability to fix this issue on their own leaves the SEC with two unsavory options. First, the SEC could stop trying cases in front of ALJs until Congress acts to fix the ALJ’s constitutional malady. This would require trying practically all cases in district court—as it is doubtful the Commission itself could not handle much of the burden. Second, the SEC could roll the dice—continuing to try cases in front of unconstitutionally protected ALJs and take the hit to their institutional legitimacy. The SEC has opted for the second choice.
The SEC has not taken the first option for two primary reasons. First, pushing all enforcement into district courts would limit the ability of the SEC to bring the number of actions it traditionally does. The SEC saves resources both by taking advantage of the slimmed down procedural protections in administrative proceedings, and the larger incentives to settle in that forum. Fewer cases would naturally result in less enforcement of securities law. Second, the switch away from the administrative forum would draw unwanted attention to the SEC and potentially incentivize the bringing of more constitutional challenges to the agency adjudication process. Because of the reduced number of enforcement proceedings, higher chance of losing these proceedings, and bad publicity, this is not an appealing option for the SEC.
Given that the first option has high costs to the SEC, they will continue to try defendants in front of unconstitutionally appointed ALJ’s. However, trying defendants in front of constitutionally defunct ALJs is not without its drawbacks. First and foremost, it hurts the legitimacy of the SEC. Even if the SEC is not chiefly responsible for the conundrum it finds itself in, it will likely still shoulder some of the blame. It also creates the risk that parties in violating of securities law will have their conviction overturned if and when the Supreme Court finds the ALJ’s protections unconstitutional. Although, this is not as large of a risk as it appears.
While defendants could get a new hearing if they can prove to an Article III court that their ALJ was unconstitutionally protected, this is very difficult to do in practice. The SEC already induces settlements in 98% of the actions it brings. For the 2% who go to trial the journey to a fair adjudicator is no cakewalk. First, they must go through an administrative proceeding overseen by an ALJ. Second, they must appeal to the Commission, which is more likely to increase their penalty than decrease it. Finally, they can appeal to a federal circuit court. If they win there, their case is remanded all the way back to an ALJ to start the process over again. Few defendants have the time, money, or willpower to fight through this process to force the SEC to stop using unconstitutionally protected ALJs.
Given the steps required to challenge the constitutionality of an administrative proceeding in a competent forum, the SEC has been able to use unconstitutionally appointed ALJs without substantially harming its enforcement efforts. However, this may change as there were recently oral arguments in a Ninth Circuit case which would allow for defendants to take their constitutional objections directly to district court, rather than wading through the administrative processes. If the panel decides defendants can take their complaints directly to district court, this would likely speed up the process by which the Supreme Court can develop administrative law.
Congress has done the SEC no favors. By failing to remove tenure protections for ALJs, Congress forces the SEC to litigate a losing position and potentially jeopardize ALJ findings of liability for defendants. It may be that by eliminating the dual-layer tenure-protection enjoyed by ALJs, Congress would be tacitly admitting that the rule is unconstitutional; however, this issue is not going anywhere. Voluntarily ripping off the band-aide now is a better optic than the Supreme Court ripping it off somewhere down the line.
 See Lucia v. SEC, 138 S. Ct. 2044 (2018).
 Id. at n.1.
 Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 447, 492 (2010).
 Brief for Respondent at 40-42, Lucia v. SEC, 138 S. Ct. 2044 (2018) (No. 17-130).
 See Cochran v. SEC, No. 4:19-CV-066-A, 2019 U.S. Dist. LEXIS 49751, 5-6 (N.D. Tex. Mar. 25, 2019) (defendant asking a district court to exert jurisdiction over her claim that her ALJ was unconst utionally protected).
 Article I, Section I, Clause I of the Constitution vests all legislative powers in Congress. Therefore, agencies cannot write, or rewrite laws. Since the dual-layer protections are statutory, the SEC cannot change them. 5 U.S.C. §7521(a).
 See Ilan Wurman, Constitutional Administration, 69 Stan. L. Rev. 359, 372.
 5 U.S.C. §7521(a) (ALJs are protected from firing by statute and only a statute or court ruling can change that).
 The SEC can bring in-house proceedings much quicker than it can district court proceedings. This requires fewer resources and allows the SEC to bring more cases. Bruce Carton, SEC Gives Views on Courts vs. Administrative Hearings, Compliance Week, https://www.complianceweek.com/sec-gives-views-on-courts-vs-administrative-hearings/12268.article, (May, 10, 2015).
 There is more incentive to settle in administrative proceedings because defendants lose at a higher rate. See Jean Eaglesham, SEC Wins with In-House Judges, Wall Street Journal, https://www.wsj.com/articles/sec-wins-with-in-house-judges-1430965803 (May 6, 2015) (noting that the SEC wins 90% of administrative proceedings, compared to 69% of district court proceedings).
 See Gillian Metzger, The Administrative State Under Siege, 131 Harv. L. Rev. 1 (2017) (noting how the decision in Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 447 (2010) created a “cottage industry” of constitutional challenges).
 Securities and Exchange Commission, Division of Enforcement Annual Report 2019, 14, 2019.
 Eaglesham supra, note 12 (noting the Commission more often increases penalties than decreases them).
 15 U.S.C. §78y(a)(1).
 See supra, note 1.
 Axon Enter. v. FTC, No. 20-15662, 2020 U.S. App. LEXIS 13409 (9th Cir. Apr. 24, 2020) (this case is deciding the same issue but in the FTC context).