Lucia v. SEC: What you need to know

In a 7-2 ruling issued last week, the Supreme Court said federal administrative law judges who rule on serious charges like stock fraud cannot be hired like career professionals but must be appointed by political appointees such as cabinet secretaries and commissioners.

Background

In 2012, an administrative law judge working for the Securities and Exchange Commission found investment adviser Raymond J. Lucia and Raymond J. Lucia Companies Inc. guilty of violating multiple anti-fraud provisions of the Investment Advisers Act.

An SEC administrative law judge found the defendants guilty of making deceptive statements and misleading potential investors about retirement investments. The judge ordered a $300,000 fine and banished Lucia from the investment industry for life. That verdict and sentence were later affirmed by a panel of the D.C. Circuit’s Court of Appeals.

Lucia appealed to the Supreme Court, arguing that the ruling should be thrown out because the ALJ who made the original ruling, Cameron Elliot, was not appointed properly under the Constitution. He argued that the judge was an Inferior Officer as defined in the Appointments Clause of the Constitution. Being an Inferior Officer of the United States requires an appointment by the President, a head of department, or a Court of Law, which, in the SEC’s case, would require appointment by the Securities and Exchange Commissioners. Elliot had been hired by the chief administrative law judge and not by the commissioners.

The Trump administration backed Lucia’s interpretation of the law. And last November the SEC began to conform with the Appointments Clause by having the commission ratify ALJ appointments as a body and not delegate future ALJ appointment to the agency’s staff members. They also acted to approve previous rulings by ALJs who had been appointed in the manner of career professionals.

Implications of the verdict

For Lucia, it means a new hearing before an SEC judge appointed by the commissioners.

Some argue that this decision might provide the president with more direct control over a large number of Executive Branch employees, well beyond just ALJs.

Implications for ALJs

The decision will likely affect many of the more than 1,800 ALJs who perform similar tasks at other agencies, such as the National Labor Relations Board.

In a concurring opinion, Justice Stephen G. Breyer worried that the decision risks “unraveling, step-by-step, the foundations of the federal government’s administrative adjudication system as it has existed for decades, and perhaps of the merit-based civil-service system in general.”

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