Supreme Court to review appointment of SEC's in-house judges

The decision could affect more than 100 cases currently at the SEC, along with a dozen that are on appeal

Jan 12, 2018 @ 3:55 pm

By Bloomberg News

The U.S. Supreme Court will decide whether the Securities and Exchange Commission's in-house judges were appointed in violation of the Constitution, agreeing to hear a case that could upend administrative hearing systems across the federal government.

The move came at the request of the Trump administration, which switched sides in November and told the justices it would no longer defend the SEC's system.

The dispute could affect more than 100 cases currently at the SEC, along with a dozen that are on appeal in the federal courts. It also could have ramifications for other government agencies, including the Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau, which have similar systems for appointing their administrative law judges.

The justices will hear an appeal from Raymond Lucia, who was fined $300,000 and barred from working as an investment adviser after an SEC judge found he misled prospective clients. Lucia contends the SEC judges are "officers," and not mere employees, meaning the Constitution requires them to be appointed by the president, a department head or a court.

Lucia's lawyer, Mark Perry, says the constitutional requirement ensures that important formalities are observed -- including a commission vote and the administration of an oath of office -- before people wield federal authority.

Those steps "are required and observed precisely so that the public, the agency and the officer himself or herself knows and understands who is an officer and what office that person holds," Perry said in an interview.

The Trump administration told the court that the judge who handled Lucia's case "did not conform" to the Constitution's requirements. The SEC's judges are selected by the chief judge and approved by the commission's personnel office, U.S. Solicitor General Noel Francisco said in court papers.

Federal appeals courts are divided on the issue. The Washington-based court in Lucia's case said the SEC's judges don't qualify as officers because their decisions don't become final until the commission itself takes action, either by reviewing the ruling or by explicitly declining to intervene.

"The initial decision becomes final when, and only when, the commission issues the finality order, and not before then," Judge Judith Rogers wrote for the unanimous three-judge panel. "Thus, the commission must affirmatively act -- by issuing the order -- in every case."

The Trump administration's shift in position means the Supreme Court probably will appoint an outside lawyer to defend the lower court ruling.

The SEC's top lawyers didn't sign the Trump administration brief, suggesting they don't support the new position.

The day after the brief was filed, the SEC issued an order that ratified the appointment of its five judges and told them to review each of their pending cases. Although the commission said the moves would resolve any problems under the appointments clause, that's likely to be disputed. Lucia's lawyers called the order "substantively defective."

Critics say the SEC fares much better before its own judges than it does in federal court. In a court filing supporting Lucia, the U.S. Chamber of Commerce said the commission has a "home court advantage in administrative proceedings."

The case is Lucia v. SEC, 17-130.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

The power of data

Your clients have financial news and data at their fingertips, but donít know how to interpret it. Katy Gibson of Envestnet|Yodlee and Blake Kannady of Envestnet discuss the power of leveraging aggregated data.

Recommended Video

Path to growth

Latest news & opinion

Relying on trainees, Merrill Lynch boosts adviser headcount in 2017

Questions remain about long-term effectiveness of wirehouse's move away from recruiting experienced brokers.

Lightyear Capital takes 50% stake in $9 billion HPM Partners

Private equity backing could fuel acquisitions by the large RIA.

Tax reform: 7 essential strategies for financial advisers

While advisers face the difficult task of analyzing the law's impact, they will also have a significant opportunity to prove their value by implementing money-saving strategies for clients as well as their own businesses.

Tax law: Everything advisers need to know about the pass-through provision

The provision is tricky, but could provide advisers and business-owner clients with sizable tax savings.

Bill requiring fiduciary disclosure reintroduced in New Jersey

Measures would obligate financial advisers to tell clients they do not have to act in their best interests.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print