Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...
May 13 — D.C. Circuit judges examined an investment adviser's claims May 13 that the Securities and Exchange Commission's administrative law judges are unconstitutionally appointed, wading with the parties into administrative and constitutional issues.
In an oral argument that lasted more than 90 minutes, both sides dug deeply into the nuances of what makes agency employees “officers” subject to the Appointments Clause, and whether and how decisions of the SEC's ALJs are considered final.
The administrative forum is simply the SEC's “pet court” and the agency is “selling a false independence” for its judges, Mark A. Perry of Gibson, Dunn & Crutcher LLP said to a panel of the U.S. Court of Appeals for the District of Columbia Circuit. Perry represents Raymond J. Lucia, an adviser whose constitutional challenge is part of his appeal of an ALJ's decision that barred him from the industry for life.
Perry argued that the SEC's ALJs are executive branch “officers,” and because they aren't appointed by the president or the commissioners, their hiring was unconstitutional.
They are officers who have the power to make decisions on behalf of the agency, in part because most initial decisions become final without modification or action from the commission, he said.
When an ALJ's initial decision becomes final, the stock language is that the commission “has not chosen to review” the decision. That language reflects inaction on the part of the SEC, Perry argued, which would be different if the orders said the commission “has chosen not to review” a decision.
“Words are important,” Perry said.
Judge Cornelia T.L. Pillard went back and forth with Perry on the matter but didn't seem disposed to a ruling either way. Pillard called it a “tough issue.”
The agency was represented by SEC Senior Litigation Counsel Dominick V. Freda and Justice Department appellate attorney Mark B. Stern.
They pushed back on Perry's reading of both federal statutes and SEC regulations, saying Congress's intent was to allow ALJs to conduct independent hearings while still granting ultimate authority to politically accountable agency heads—the SEC, in this case—subject to judicial review.
At the end of his constitutional argument, Perry said the agency's hiring of ALJs violated the Appointments Clause in a “blatant, violent, disobedient” way.
“Tell us how you really feel,” Judge Robert L. Wilkins joked in response. Judge Judith W. Rogers also sat on the panel.
Lucia's case came on appeal from an administrative proceeding against him and his firm, in which they were accused of misleading investors about their “Buckets of Money” investment strategy (172 SLD, 9/6/12).
In July 2013, ALJ Cameron Elliot revoked Lucia's adviser registration, hit him with an industry bar, and ordered him and his company to pay $200,000 (133 SLD, 7/11/13). The SEC didn't take up Elliot's decision and Lucia appealed to the D.C. Circuit.
The appeals court briefly addressed the merits of the SEC's allegations, but the majority of the argument was taken up by the constitutional issues.
To contact the reporter on this story: Rob Tricchinelli in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Phyllis Diamond at email@example.com
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)