Punished by the SEC? Supreme Court You Get Another Chance
WHAT?

Punished by the SEC? Supreme Court You Get Another Chance
WHAT?

The Supreme Court, in Lucia v. Securities and Exchange Commission, ruled that the Administrative Law Judges (ALJs) hired by the SEC were not constitutionally appointed. The Court then said that anyone sanctioned in an SEC administrative proceeding where they objected to the ALJs powers could have the sanction overturned and have a new administrative proceeding.

Court’s Opinion

The Court ruled that Administrative Law Judges were “officers” of the United States. The constitution requires that these ALJ officers be appointed by the full Commission. That was not the SEC’s practice until late last year. Therefore, the Court said anyone objecting to the appointment of these judges was entitled to a new hearing before a new administrative law judge who had been constitutionally appointed.

Another Out

The opinion left open other grounds that could be used to challenge the constitutionality of the appointment of these ALJs. This would be another ground to strike any sanctions they issued, whether or not affirmed by the full Commission.

What next?

The SEC has stayed all pending administrative proceedings until July 21, 2018. This may be extended. The SEC has a number of choices of what to do. They could overrule all sanctions imposed in prior proceedings where the ALJ was not constitutionally appointed. But, that is not likely.

But this opens the door for parties sanctioned in a contested administrative proceeding to seek reversal of the sanctions based upon the unconstitutional status of the then presiding ALJ, either on the grounds set out in the Supreme Court opinion or other challenges.

Contact

If you have any questions, comments or would like to further discuss this, please call (212 455 0576) or email (msimkin@securitiesregslawyer.com) me.

July 2018
Morris Simkin