The U.S. Supreme Court will decide whether the Securities and Exchange Commission's in-house judges were appointed in violation of the Constitution, agreeing to hear a case that could upend administrative hearing systems across the federal government.
The move came at the request of the Trump administration, which switched sides in November and told the justices it would no longer defend the SEC's system.
The dispute could affect more than 100 cases currently at the SEC, along with a dozen that are on appeal in the federal courts. It also could have ramifications for other government agencies, including the Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau, which have similar systems for appointing their administrative law judges. The Social Security Administration uses administrative law judges to run the Social Security disability insurance (SSDI) program.
The justices will hear an appeal from Raymond Lucia, who was fined $300,000 and barred from working as an investment adviser after an SEC judge found he misled prospective clients. Lucia contends the SEC judges are "officers," and not mere employees, meaning the Constitution requires them to be appointed by the president, a department head or a court.
Lucia's lawyer, Mark Perry, says the constitutional requirement ensures that important formalities are observed — including a commission vote and the administration of an oath of office — before people wield federal authority.
Those steps "are required and observed precisely so that the public, the agency and the officer himself or herself knows and understands who is an officer and what office that person holds," Perry said in an interview.
The Trump administration told the court that the judge who handled Lucia's case "did not conform" to the Constitution's requirements. The SEC's judges are selected by the chief judge and approved by the commission's personnel office, U.S. Solicitor General Noel Francisco said in court papers.
Federal appeals courts are divided on the issue. The Washington-based court in Lucia's case said the SEC's judges don't qualify as officers because their decisions don't become final until the commission itself takes action, either by reviewing the ruling or by explicitly declining to intervene.
