The U.S. Court of Appeals in Washington on Tuesday upheld the Securities and Exchange Commission's in-house courts on constitutional grounds.
Previous challenges to the SEC's use of administrative law judges have been rebuffed before addressing the constitutional question, or are still awaiting rulings.
Former investment adviser Raymond Lucia challenged a 2013 administrative law judge decision banning him from the industry for life for alleged misrepresentations in a “buckets of money” retirement wealth management strategy.
After losing appeals of the decision, Mr. Lucia filed the lawsuit arguing the decision should be vacated because the administrative law judge was an officer as defined by the U.S. Constitution, but was not properly appointed under its appointments clause.
Judge Judith W. Rogers wrote on behalf of a unanimous three-judge panel that SEC administrative judges are not officers because their decision must be approved by SEC commissioners: “the commission's ALJs neither have been delegated sovereign authority to act independently of the commission nor, by other means established by Congress, do they have the power to bind third parties, or the government itself, for the public benefit,” Ms. Rogers wrote.
The order also said that “this court could not cast aside a carefully devised scheme established after years of legislative consideration and agency implementation.” The ruling upheld the lifetime ban against Mr. Lucia.
