SEC use of administrative judges dealt setback: business of law

(Bloomberg) — The U.S. Securities and Exchange Commission’s use of administrative law judges, greatly expanded following the enactment of the Dodd-Frank law, has received a setback.

U.S. District Judge Richard Berman in Manhattan Wednesday ruled that the agency’s method for appointing its in-house judges “is likely unconstitutional.”

Berman held that because of the power they wield in overseeing internal cases, administrative judges probably should be appointed by the president or SEC commissioners. They’re now named through the agency’s normal hiring procedures.

Last week, the judge said the agency could adopt an “easy fix” and change its appointment process. The SEC has so far refused.

Berman’s decision, along with two that reached a similar conclusion in Atlanta in June, poses a dilemma for the SEC. The agency’s options include routing fewer cases to in-house judges or trying to challenge the ruling on appeal.