The first appellate court to uphold Securities and Exchange Commission in-house courts on constitutional grounds revisited the issue Wednesday before a 10-judge panel of the U.S. Court of Appeals for the District of Columbia.
The appeals court granted the rehearing after vacating an
Aug. 9 decision by a three-judge panel that administrative judges are not constitutionally appointed officers because their decisions must be approved by SEC commissioners. The rehearing was granted after the initial decision was appealed by former investment adviser
Raymond Lucia, who was banned from the industry for life by an SEC administrative law judge in 2013 for alleged misrepresentations in a "buckets of money" retirement wealth management strategy.
Mr. Lucia's lawyer, Mark Perry of Gibson, Dunn & Crutcher, argued Wednesday that considering the in-house judges to be constitutional goes against Supreme Court precedent in related cases and limits their accountability. But Department of Justice attorney Mark Stern countered that "there should be no doubt where accountability for a decision lies — it lies with the commission itself."
Several of the 10 judges raised concerns about investing one person with that much authority, and how invalidating the SEC administrative judges would impact other federal administrative judges.
"We might be raising significant constitutional questions," Judge David Tatel said.
Those questions make the issue likelier to wind up before the Supreme Court, following
a different ruling in December by the 10th U.S. Circuit Court of Appeals in Denver, which decided in David F. Bandimere vs. U.S. Securities and Exchange Commission that the appointments process was unconstitutional. At least 18 other cases challenging how SEC in-house judges are appointed are pending.
On Monday, the SEC stayed all administrative proceedings that could be reviewed by the 10th circuit until it decides whether to appeal the Bandimere decision. The order noted that the SEC could assign any pending proceeding to itself.
Hazel Bradford is a reporter for InvestmentNews' sister publication Pensions & Investments.
