SCOTUS to Decide Whether SEC Violated Appointment Clause on Judges

(CN) – A syndicated radio host convinced the Supreme Court to consider whether the administrative law judge who barred him from the investment industry was an employee of the plaintiff Securities and Exchange Commission within the meaning of the appointments clause.

Raymond J. Lucia Sr. owned and ran Raymond J. Lucia Companies, Inc., and began hosting the “Ray Lucia Show” on radio in 1990. It late became nationally syndicated, and Lucia says he had an unblemished, nearly 40-year record as a financial advisor until the SEC brought charges against him.

In July 2013, the agency affirmed a ruling by an administrative law judge who held Lucia      “misled investors at investment seminars by claiming that their proprietary ‘Buckets of Money’ investment strategy had been empirically ‘backtested’ over actual bear market periods when they performed scant, if any, backtesting.”

A statement from the SEC at the time said Lucia and his company were fined $300,000, had their investment adviser registrations revoked and were barred from the industry.

Lucia challenged the ruling on the grounds of whether the SEC’s administrative law judges are “officers” of the agency or “employees.”

If they are officers, then they are unconstitutional, as the SEC’s administrative law judges are appointed through an administrative process, and not by the “head of a department,” as the Appointments Clause requires.

If the ALJs are not “officers” but are instead merely employees, then there is no problem.

The Justices did not explain their rationale for taking up the case.

Lucia argues that  since administrative law judges of the Securities and Exchange Commission preside over trial-like adversarial hearings, during which they take testimony, rule on the admissibility of evidence, enforce compliance with their orders, they must be subject to appointment under the Appointments Clause.

“In this case, however, a three-judge panel of the D.C. Circuit ruled that SEC ALJs are mere employees who are not subject to the Appointments Clause,” the petition for certiorari says. “The Tenth Circuit expressly disagreed with that decision, ruling that SEC ALJs are Officers of the United States within the meaning of the Appointments Clause.”

The D.C. Circuit granted Lucia  an en banc rehearing, but deadlocked 5-5 — leaving the panel decision and the troublesome circuit split intact.

The Justices did not explain their rationale for taking up the case.

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