RIA Compliance Blog
The ability of the Securities and Exchange Commission (SEC) to prosecute enforcement actions selectively through its own administrative proceedings is under constitutional attack in cases pending in the Fifth and Ninth Federal Judicial Circuits. The Ninth Circuit case was brought by Raymond Lucia, the same former investment adviser who succeeded in a constitutional challenge to the method of appointment of the SEC’s Administrative Law Judges (ALJs) in 2018. In that case, Lucia v. SEC, the U.S. Supreme Court held that these ALJs were “Inferior Officers” for purposes of the Constitution’s Appointments Clause, meaning that they must be appointed by either the President or the SEC itself. Prior to the decision in that case, ALJs were hired pursuant to the regular civil service process applicable to federal employees. In response to the Supreme Court’s ruling, the SEC ratified the appointment of its existing ALJs.
Lucia’s new challenge, and a similar challenge brought by accountant Michelle Cochran, are pending in the Ninth and Fifth Circuits, respectively. In those cases, the plaintiffs continue to challenge the constitutionality of the SEC administrative enforcement process. Among other things, the plaintiffs argue that the procedures in place preventing the removal of the ALJs are unconstitutional and that the administrative proceedings deprive respondents of the Seventh Amendment’s guarantee of trial by jury.
Lucia is represented by the New Civil Liberties Alliance, a nonprofit organization that, according to its website, “views the administrative state as an especially serious threat to constitutional freedoms.” It assists litigants in challenging what it considers to be unconstitutional administrative processes.