Burr Alert: Supreme Court: SEC Administrative Law Judges Must Be Appointed by Political Officials

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Are Administrative Law Judges ("ALJs") "Officers of the United States" or simply employees of the Federal Government? In Lucia v. SEC, decided last Thursday, the Supreme Court answered that question in favor of the former, and the potential ramifications-and follow-on litigation-are likely to ripple through administrative agencies and the entities they regulate for years to come.

The SEC is responsible for enforcing the securities laws of the United States. Among the remedies available to it, the SEC may institute an administrative proceeding against alleged violators. These proceedings are presided over by an ALJ, who has the "authority to do all things necessary and appropriate" to ensure a "fair and orderly" adversarial proceeding. Staff members of the SEC-rather than the Commissioners themselves-have appointed five ALJs to oversee these administrative proceedings. Upon completion of an administrative hearing, an ALJ typically issues an initial decision. The SEC may then choose to review the decision or issue an order finalizing it, at which time the initial decision becomes "the action of the Commission."

In Lucia, an investment broker used misleading marketing practices to deceive prospective clients. The SEC assigned his case to an ALJ, who fined him $300,000 and barred him for life from the investment industry. Lucia appealed, arguing that the entire proceeding was invalid because the Commission's ALJs are "Officers of the United States," and thus subject to the Appointments Clause of the Constitution. The Supreme Court agreed. Guided by Buckley v. Valeo, the Court analyzed whether ALJs exercise "significant authority" pursuant to the laws of the United States. Justice Kagan, writing for the majority, left a closer examination of "significant authority" for another day and held that Lucia was directly controlled by Freytag v. Commissioner, a case in which the Supreme Court held that special trial judges of the U.S. Tax Court were "Officers" for purposes of the Appointments Clause.

Download the full article, "Burr Alert: Supreme Court: SEC Administrative Law Judges Must Be Appointed by Political Officials" written by Jacob A. Burchfield.

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