Lucia v. Securities and Exchange Commission

The Securities and Exchange Commission (SEC) has authority to enforce securities laws by instituting an administrative proceeding against an alleged wrongdoer, typically overseen by an administrative law judge (ALJ). Other staff members, rather than the Commission, selected all of the five current ALJs, who have “authority to do all things necessary and appropriate” to ensure a “fair and orderly” adversarial proceeding, 17 CFR 201.111, 200.14(a). After a hearing, the ALJ issues an initial decision. The Commission can review that decision, but if it opts against review, it issues an order that the initial decision is “deemed the action of the Commission,” 15 U.S.C. 78d–1(c). The SEC charged Lucia and assigned ALJ Elliot to adjudicate the case. Following a hearing, Elliot issued an initial decision concluding that Lucia had violated the law and imposing sanctions. Lucia argued that the proceeding was invalid because SEC ALJs are “Officers of the United States,” subject to the Appointments Clause. Under that Clause, only the President, “Courts of Law,” or “Heads of Departments” can appoint “Officers.” The SEC and the D. C. Circuit rejected Lucia’s argument. The Supreme Court reversed. SEC ALJs are subject to the Appointments Clause. To qualify as an officer, rather than an employee, an individual must occupy a “continuing” position established by law, and must “exercis[e] significant authority pursuant to the laws of the United States,” SEC ALJs hold a continuing office established 5 U.S.C. 556–557, 5372, 3105, and exercise “significant discretion." The ALJs have nearly all the tools of federal trial judges: they take testimony, conduct trials, rule on the admissibility of evidence, can enforce compliance with discovery orders, and prepare proposed findings and an opinion including remedies. Judge Elliot heard and decided Lucia’s case without a constitutional appointment. View "Lucia v. Securities and Exchange Commission" on Justia Law