The in-house judges at the Securities and Exchange Commission were appointed by staff members rather than by the commission itself.
The Supreme Court of the United States ruled the appointments violated the Constitution and judges had been deciding cases without constitutional authorisation. The New York Times reports that the SEC ran afoul of the Constitution’s appointments clause. Justice Elena Kagan wrote for the majority in the 7-to-2 decision. The clause requires ‘inferior officers’ to be appointed by the president, the courts or ‘heads of departments.’ The commission itself is a ‘head of department,’ while its staff members are not. Since the judges exercised significant authority in hearing and ruling on disputes, Justice Kagan wrote, they were officers rather than mere employees. It did not matter, she wrote, that the judges’ decisions were subject to review by the commission. The Justice Department, which had long contended that the in-house judges were employees and not officers, switched positions in the Supreme Court in the last year. In an unusual move, it urged the justices to grant review in the case, Lucia v. Securities and Exchange Commission, No. 17-130, even though it had won in the appeals court.
Buckets of money
Since the two sides agreed that the judges had not been properly appointed, the court invited Anton Metlitsky, a New York lawyer who had served as a law clerk to Chief Justice John G. Roberts Jr. to argue the opposite position. The Justice Department then asked the Supreme Court to hear the case, the commission appeared to cure the constitutional problem. It issued an order ratifying the appointments of the in-house judges. And it instructed judges to give fresh consideration to pending matters. The case arose from charges that Raymond Lucia and his firm had made misleading presentations to prospective clients about a retirement strategy they called ‘Buckets of Money.’ Mr Lucia lost before an administrative law judge and the SEC and a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit rejected a challenge to the judge’s authority. The full appeals court agreed to rehear the case, but its judges deadlocked. Justice Sotomayor, joined by Justice Ginsburg, dissented from the decision’s central holding. The judges, she wrote, are not officers since they ‘do not exercise significant authority because they do not, and cannot, enter final, binding decisions against the government or third parties.’