The S.E.C. decided not to appeal the decision in Mr. Hill’s favor to the full commission for further review, a notable defeat for its enforcement division.
Ms. Duka and Mr. Hill both obtained a temporary stay in their administrative hearings by convincing Federal District Court judges in Manhattan and Atlanta that the agency’s process for hiring its administrative law judges violated the Constitution.
That issue involves a determination of what positions qualify as “inferior officers” under the Appointments Clause, which provides that “the Congress may by law vest the appointment of such inferior officers, as they think proper, in the president alone, in the courts of law or in the heads of departments.” The claim is that Congress must designate an official who has been appointed by the president, such as the S.E.C.’s five commissioners, to appoint the judges, not just the agency’s internal personnel office.
The appeals courts in both cases rejected the finding that the appointment was improper, holding that the charges must first proceed through the normal administrative process in which the question of the in-house judge’s status could be decided first by the commission. Not surprisingly, the constitutional challenge was rejected by the very agency that hired the judges.
Two subsequent cases reached the appeals courts on the Appointments Clause issue after the administrative process played out, and they split on the question.
In Raymond J. Lucia v. S.E.C., involving charges of violations of the Investment Advisors Act of 1940, a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit held that the in-house judges were not “inferior officers” so their hiring did not violate the Constitution. Mr. Lucia and his firm then asked the full court to decide the case — an “en banc” review — but the judges were equally divided on a 5-5 vote on the question, thereby affirming the panel decision.
In the meantime, the United States Court of Appeals for the 10th Circuit in Denver reached the opposite conclusion in Bandimere v. S.E.C., invalidating an order requiring the defendant to disgorge over $600,000 and prohibiting him from associating with securities firms. The appeals court rejected the analysis in the Lucia decision, holding that because the administrative law judge “was not constitutionally appointed, he held his office in violation of the Appointments Clause.”
The S.E.C. asked for…