A Washington federal appeals court on Tuesday rejected an investment advisor’s challenge to the constitutionality of the U.S. Securities and Exchange Commission’s administrative law judges, the first court ruling that directly confronted the merits of the agency’s in-house proceedings.
Raymond Lucia, barred for life by the agency, had argued the SEC’s in-house judges are “officers of the United States” who must be appointed by the commissioners rather than through a bureaucratic process.
Writing for a unanimous three-judge panel of the U.S. Court of Appeals for the D.C. Circuit, Judge Judith Rogers said the in-house judges cannot be considered officers because their decisions only become final after the SEC signs off with a formal order. Judges Cornelia Pillard and Robert Wilkins joined the ruling, which also upheld the lifetime sanction.
The SEC, Rogers wrote, “gives itself time to decide whether to order review and must always issue a finality order to indicate whether it has declined review. Petitioners offer neither reason to understand the finality order to be merely a rubber stamp, nor evidence that initial decisions of which the commission does not order full review receive no substantive consideration as part of this process.”
In the aftermath of the Dodd-Frank financial reform package, the SEC’s in-house judges have become a lightning rod for litigation as the agency has increasingly prosecuted cases through administrative proceedings. So far, the SEC has succeeded in fending off the challenges.
Before Tuesday, courts dismissed challenges on jurisdictional grounds. In early June, the U.S. Court of Appeals for the Second Circuit rebuffed financier Lynn Tilton’s challenge because her case was still pending before the SEC.