SEC Ratifies Appointment of Administrative Judges

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By Phyllis Diamond

The Securities and Exchange Commission ratified the appointment of its five agency administrative law judges Nov. 30 in an effort to head off a challenge to the constitutionality of its hearing process.

“By ratifying the appointment of its ALJs, the Commission has resolved any concerns that administrative proceedings presided over by its ALJs violate the Appointments Clause,” the Securities and Exchange Commission said in a statement. It also directed its ALJs to review their actions in open administrative proceedings.

ALJs Are Officers

A day earlier, in an abrupt about-face, the administration told the U.S. Supreme Court it would no longer defend a decision by the U.S. Court of Appeals for the District of Columbia Circuit upholding the SEC’s use of in-house judges.

The case is one of many contending that the way the agency’s law judges were appointed isn’t constitutional. In the case, investment adviser Raymond J. Lucia, who was barred from the industry for allegedly misleading prospective clients, claimed unsuccessfully that the proceedings against him were flawed because the SEC’s in-house judges were hired unconstitutionally.

SEC ALJs are constitutional “officers” who must be appointed pursuant to the Appointments Clause—that is, by the president, a federal judge or the head of the agency— Lucia said.

After the D.C. Circuit disagreed, Lucia asked the Supreme Court to take up the case. In a Nov. 29 brief, U.S. Solicitor General Noel Francisco told the justices that SEC ALJs are, in fact, “officers” subject to Appointments Clause restrictions.

“We have maintained all along that the SEC’s ALJs are Officers of the United States because they exercise significant authority under federal law,” Lucia’s lawyer Mark Perry told Bloomberg Law. “The contrary judgment of the D.C. Circuit should be reviewed and reversed by the Supreme Court—as both Mr. Lucia and the United States request,” Perry, a member of Gibson Dunn & Crutcher LLP, Washington, said.

The SEC ratified the appointments of Chief Administrative Law Judge Brenda Murray and ALJs Carol Fox Foelak, Cameron Elliot, James E. Grimes, and Jason S. Patil.

To contact the reporter on this story: Phyllis Diamond in Washington at pdiamond@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

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