D.C. Circuit Upholds Constitutionality of SEC - Brownstein Hyatt Farber Schreck

D.C. Circuit Upholds Constitutionality of SEC Administrative Law Judges

Aug 10, 2016

Client Alert

Brownstein Client Alert, August 10, 2016

The Securities and Exchange Commission (“SEC”) scored a significant victory yesterday in its quest to defend the increased use of its in-house judges when a three-judge panel of the D.C. Circuit ruled that the appointment of the SEC’s administrative law judges (“ALJs”) does not flout constitutional requirements.  Notably, this is the first time a circuit court of appeals has ruled on the merits of the constitutionality issue.

The appeal involved a review of an SEC opinion upholding an ALJ’s initial decision finding Raymond J. Lucia and his entities liable for misleading statements under the Investment Advisers Act of 1940. As part of its opinion, the SEC rejected Lucia’s arguments that the administrative hearing was unconstitutional because the ALJ presiding over the matter was unconstitutionally appointed. The key question at issue was whether the ALJ was simply an employee of the SEC, or rather whether he should be considered an “inferior officer” of the United States, subjecting his appointment to the requirements of the Appointments Clause of Article II of the Constitution. Not surprisingly, the SEC found that its ALJ was an employee, not an inferior officer, and therefore not subject to the Appointments Clause.

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