SEC Suffers Setback In Case Challenging Constitutionality Of Administrative Law Judges

May 3 2017 | 10:05pm ET

The U.S. Securities and Exchange Commissions suffered a setback on Wednesday as a federal appeals court refused the regulator’s request to reconsider a decision that held its in-house administrative judges are not constitutionally appointed.

The 10th U.S. Circuit Court of Appeals declined to rehear a case involving Colorado businessman David Bandimere, who was ordered to pay more than $1 million in disgorgement and sections after an SEC administrative law judge found that he had acted as an unregistered broker. Bandimere’s appeal rested partly on the argument, repeated in several other cases pending before U.S. courts, that in-house SEC judges serve in violation of the Appointments clause of the U.S. Constitution. In December, U.S. Circuit Judge Scott Matheson sided with Bandimere.

Due to conflicting interpretations among courts, including a decision by the U.S. Court of Appeals in Washington DC that upheld the SEC’s use of administrative law judges, the issue of whether the system is constitutional is certain to land with the U.S. Supreme Court. In the meantime, the 10th Circuit’s decision is a major setback for the agency and carries ramifications for defendants who have attacked the regulator’s in-house judicial system for procedural deficiencies and argued it lacks fundamental fairness since the judges are hired, not appointed.

Use of the in-house courts has risen sharply since the financial crisis and the passage of the 2010 Dodd-Frank financial reform law. The SEC argues the system speeds up case resolution, while critics have called the process inherently flawed, biased and unfair. 

The case is Bandimere v. U.S. Securities and Exchange Commission, 10th U.S. Circuit Court of Appeals, No. 15-9586.


In Depth

Q&A: Fund Administration Comes To The Cloud

Jul 14 2017 | 7:23pm ET

The fund administration sector has been steadily implementing new technology, such...

Lifestyle

CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Rastegar: PE Real Estate Gains Momentum as Uncertainty Rises

Jul 21 2017 | 6:04pm ET

The steady march of equity markets and fundamental shift in the direction of Fed...

 

From the current issue of