The first U.S. appeals court to weigh in on whether Securities and Exchange Commission administrative judges are constitutional issued a split decision Monday, when the 10-judge panel of U.S. Court of Appeals for the District of Columbia Circuit voted 5-5 and denied a bid to overturn an earlier decision that upheld the SEC's in-house courts on constitutional grounds.
The split decision increases the chances that the issue will wind up at the Supreme Court, following the opposite ruling May 24 by a 10th U.S. Circuit Court of Appeals panel in Denver, which found that the administrative law judge hiring process violates the U.S. Constitution.
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, argued the decision should be vacated because the administrative law judge was an officer as defined by the Constitution, but not properly appointed under its appointments clause.
In its August decision, the Washington appeals court panel said that SEC administrative judges are not officers because their decision must be approved by SEC commissioners.