SEC Wins Latest Test of ALJ Constitutionality With Split DC Circuit Ruling

Jun 27 2017 | 12:31am ET

The U.S. Securities and Exchange Commission has won the latest battle in the long-running debate over whether its in-house administrative law judges are constitutional.

In a divided 5-5 ruling, the U.S. Court of Appeals for the District of Columbia rejected a claim made by former investment advisor Raymond Lucia, who was banned for life from the financial industry in 2013, that the SEC’s administrative law judges were in fact officers under the Constitution and whose appointments must be made in accordance with the Appointments Clause. The SEC, meanwhile, argues that the judges are merely employees of the SEC who can be hired by anyone and whose decisions are reviewable by the agency.

The ruling almost guarantees involvement of the U.S. Supreme Court, as Monday’s ruling directly contradicts one in the 10th U.S. Circuit Court of Appeals in Denver in May that held the SEC’s judges are, in fact, “inferior officers” under the Constitution and must be appointed as such by the president, the head of a federal agency or a court.

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: critics have called the process inherently flawed, biased and unfair – not to mention unconstitutional. 


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