Supreme Court to Decide Legitimacy of SEC Administrative Judges

On January 12, 2018, the Supreme Court agreed to decide the issue of whether SEC administrative law judges (“ALJs”), currently selected by the chief ALJ and SEC staff, are “employees” or “officers” under the Appointments Clause of the Constitution. If they are properly classified as officers, they need to be appointed not by staff but instead by the President, the head of a department, or a court of law. (The Commission, composed of 5 commissioners when at full strength, is considered a “head of department.”)

The case concerns the order of an ALJ who barred former investment adviser Raymond Lucia from the securities industry and imposed $300,000 in civil penalties. The judge found that Lucia had made misrepresentations to customers about “back-testing” certain investment strategies. In addition to the Lucia himself, the Supreme Court’s decision may impact the more than 100 pending administrative cases and appeals kicking around the federal courts. Moreover, other agencies (e.g., the FDIC), which appoint judges in a similar manner, could be affected.

The Trump administration has taken the position that the judges are “officers” and will argue that position before the Court. Perhaps in response to that action and to cover its bases, the Commission has retroactively “appointed” the judges by issuing an order ratifying the current 5 judges. Argument has not been scheduled.

Here is a link to the case: