Adviser Gets Another Shot at SEC Judge Question

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By Antoinette Gartrell

An influential federal appeals court will reconsider a challenge to the SEC’s in-house courts on May 24 ( Raymond J. Lucia Cos., Inc. v. SEC , D.C. Cir., No. 15-1345, 2/16/17 ).

The U.S. Court of Appeals for the District of Columbia Circuit has scheduled en banc arguments in the case brought by investment adviser Raymond J. Lucia challenging the SEC’s administrative law judges.

In August 2016, a panel of three judges on the U.S. Court of Appeals for the District of Columbia Circuit concluded the administrative forum is constitutional.

The ruling by the appeals court was a victory for the SEC, which has faced related challenges in other federal courts. The controversy over the SEC’s practice of bringing enforcement actions administratively has been brewing since at least 2010, when the Dodd-Frank Act expanded the agency’s jurisdiction and allowed the agency’s enforcement division to seek monetary penalties from all individuals, not just brokers and investment advisers.

The D.C. Circuit was the first appeals court to address the merits of the controversy but other circuits have since issued conflicting rulings, prompting a petition for U.S. Supreme Court review. Thus far, the Second Circuit has ruled that the district courts don’t have jurisdiction over the constitutional question, but the Tenth Circuit held otherwise.

Appointments Clause

Lucia first sued the SEC as part of an appeal from an in-house judge’s 2013 decision barring him from the industry for misrepresenting the results of his “Buckets of Money” investment strategy.

He and other challengers contend that the SEC’s administrative law judges were hired improperly because neither the president nor the full commission made the appointment, which violates the Appointments Clause.

A panel of the D.C. Circuit rejected that reasoning, holding that ALJ orders aren’t considered final actions of the agency.

Accordingly, the court said, the judges aren’t “officers” who face Appointments Clause restrictions on their employment.

Lucia is represented by Mark A. Perry of Gibson, Dunn & Crutcher LLP, Washington. Perry nor the SEC responded to a request for comment.

To contact the reporter on this story: Antoinette Gartrell in Washington at

To contact the editors responsible for this story: Phyllis Diamond at; Seth Stern at

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