Should Judges Interpret the Law?

Judge Rakoff suggests that administrative actions not only tilt the outcome further toward the government, they make bad law.

One persistent criticism of overcriminalization — of there being so many avenues to turn a garden variety bit of misconduct into a crime — is that it inappropriately expands the set of cases that should be criminal.

The argument — which I like and have made a number of times — goes like this: Surely, putting someone in prison is among the worst things society does to one of its citizens. And we should really reserve the worst thing we do to people as punishment for the worst things people do. So if there’s an alternative enforcement vehicle, like a civil suit or an administrative proceeding, then in the vast majority of cases that’s a better avenue for government action than a criminal prosecution. And our substantive law should reflect that; whether someone pays a fine or goes to prison shouldn’t rely on the whim of a 29-year-old federal prosecutor who knows very little about life beyond how to do well on the LSAT.

Though Judge Rakoff — the man who everyone should listen to about everything — has given good reasons to be skeptical of at least a part of this argument.

In a speech before the PLI Securities Regulation Institute, he suggested that having the SEC use its administrative process resolve cases is bad for the law. He makes some good points.

The SEC has been taking cases to administrative hearings that would have gone to civil court in the past — like insider trading cases, or FCPA cases. Rakoff quotes one SEC official on the practice: “It’s fair to say it’s the new normal. Just like the rest of the enforcement division, we’re moving towards using administrative proceedings more frequently.” And, thanks to the SEC’s efforts in Congress, the Commission has the power to impose big monetary penalties in regulatory proceedings.

One can see why the SEC would find this tempting — they have acquired a reputation for not having a win/loss record in civil enforcement actions that would inspire a ton of fear.

That said, just because you’re losing, doesn’t mean it’s the forum’s fault.

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The stated rationale for this change is that it’s more efficient. In a sense, this is surely accurate; efficiency is not a hallmark of our court system. The discovery in an administrative proceeding is limited, and discovery takes a lot of time and effort.

And, if you’re the entity that did the initial investigation before starting the enforcement action, you would find depositions of less value than if you’re on equal footing with the other party. Hearsay is admissible and there’s a meaningful question of ALJ capture.

As Rakoff sums it up: “It is hardly surprising in these circumstances that the S.E.C. won 100% of its internal administrative hearings in the fiscal year ending September 30, 2014, whereas it won only 61% of its trials in federal court during the same period.”

But setting aside the basic unfairness and forum shopping of using administrative enforcement instead of the courts, Rakoff notes another problem with this shift — it’s bad for the law.

Instead of the contours of, say, insider trading statutes or other fraud prohibitions being developed by the judiciary, these areas of law will be made by SEC hired ALJs who get Chevron deference. As Rakoff says:

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In short, what you have here are broad anti-fraud provisions, critical to the transparency of the securities markets, that have historically been construed and elaborated by the federal courts but that, under Dodd-Frank, could increasingly be construed and interpreted by the S.E.C.’s administrative law judges if the S.E.C. chose to bring its more significant cases in that forum. Whatever one might say about the S.E.C.’s quasijudicial functions, this is unlikely, I submit, to lead to as balanced, careful, and impartial interpretations as would result from having those cases brought in federal court.

This problem is a cousin to a problem we see in the federal criminal space.

The vast majority of federal criminal charges are resolved through a plea. But this evades judicial review of the contours of what federal law prohibits. When Congress has multiplied the breadth of what counts as a federal crime, the need to have clear judicial interpretations of what exactly is and is not illegal is ever more important. Yet ever less frequently occurring.

Sure, there are exceptions — like Yates and Elonis from this term of the Supreme Court alone — but more often is what happened to Aaron Swartz. The government took an aggressive and expansive reading of a new statute then tried to force a plea. The options were risk forever in prison or relent (though, of course, Swartz made another, tragic, choice).

This is not good. We really should know what the law is, especially if it’s the basis to put people in prison or take away a bunch of their money.

Call me old-fashioned, but I think judges should be the ones interpreting the law. It would be nice to go back to that.


Matt Kaiser is a white-collar defense attorney at Kaiser, LeGrand & Dillon PLLC. He’s represented stockbrokers, tax preparers, doctors, drug dealers, and political appointees in federal investigations and indicted cases. Most of his clients come to the government’s attention because of some kind of misunderstanding. Matt writes the Federal Criminal Appeals Blog and has put together a webpage that’s meant to be the WebMD of federal criminal defense. His twitter handle is @mattkaiser. His email is mkaiser@kaiserlegrand.com He’d love to hear from you if you’re inclined to say something nice.