Adviser Challenges SEC In-House Judges for Second Time

By Antoinette Gartrell, Bloomberg BNA

The SEC’s administrative law judges are unconstitutionally hired, an investment adviser told the D.C. Circuit March 10 for the second time.

A U.S. Court of Appeals for the District of Columbia Circuit panel initially rejected the argument, but the full circuit agreed to reconsider Raymond J. Lucia’s challenge in February.

A reversal by the D.C. Circuit would dissolve a split with the Tenth Circuit, diminishing the likelihood of the U.S. Supreme Court reviewing the issue in the near future.

The reconsideration also is crucial because many federal agencies rely on similar in-house courts; a contrary determination by the influential D.C. Circuit could have implications for other agencies as well. The outcome could also undo several SEC in-house decisions.

Appointments Clause

In 2012, the SEC sued Lucia and his firm for misrepresenting the results of his “Buckets of Money” investment strategy. The ALJ found for the Enforcement Division, imposing a lifetime bar and $300,000 in civil penalties. The commission upheld the ALJ’s decision and rejected Lucia’s argument that the agency judges were improperly hired. The D.C. Circuit affirmed saying ALJs weren’t officers because their orders aren’t final actions of the agency.

In his brief to the full D.C. Circuit, Lucia argued that SEC ALJs are officers under the Appointments Clause who must be appointed by the president or the full commission. He said the commission’s order against him should be vacated because the ALJ wasn’t constitutionally hired. According to the commission, ALJs are mere employees and aren’t subject to the requirements of the Appointments Clause.

Lucia also argued that the sanctions imposed by the ALJ were “the securities industry equivalent of capital punishment.” The Appointments Clause was specifically designed to prevent such abuses of power by “unaccountable officials,” he said. The question isn’t a close one, Lucia said, “SEC ALJs are officers of the United States.”

Oral argument is scheduled for May 24. Lucia is represented by Mark A. Perry of Gibson, Dunn & Crutcher LLP, Washington.

To contact the reporter on this story: Antoinette Gartrell in Washington at

To contact the editors responsible for this story: Phyllis Diamond at; Seth Stern at

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