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Courts

Supreme Court will take on challenge to SEC in-house judges

The U.S. Supreme Court agreed Friday to hear the legal question of whether Securities and Exchange Commission in-house judges are properly appointed.

In recent years, the legal status of administrative law judges has been challenged by firms and individuals claiming the process for hiring them violates the Constitution's appointments clause, and two appellate courts — the D.C. Circuit in Washington and the 10th Circuit in Denver — have ruled differently.

Until recently, the SEC has argued its use of administrative law judges is proper. But on Nov. 30, the solicitor general reversed the federal government's position, asking the Supreme Court to take the case petitioned by former investment adviser Raymond Lucia, who was banned from the industry for life by an SEC administrative law judge in 2013 for alleged misrepresentations in a "buckets of money" retirement wealth management strategy.

Following the solicitor general's brief, the SEC ratified its prior appointment of the five current administrative law judges to avoid challenges over pending administrative proceedings, and directed administrative law judges presiding over pending proceedings for which no initial decision has yet been issued to reconsider those records. SEC lawyers also filed 28 letters to the courts handling related cases challenging the ALJ process, asking them to hold those cases in abeyance until the Supreme Court rules.

Arguments in the Supreme Court case are expected in the spring.