The D.C. Circuit has affirmed that SEC ALJs are not constitutional Officers subject to the Appointments Clause, rejecting perhaps the strongest of the constitutional challenges to the Commission's administrative forum. The ruling is the first case to decide the issue on its merits instead of rejecting it on procedural grounds (as the 2nd, 7th, 11th and D.C. Circuits previously did).
The Court held the Commission's right of discretionary review, coupled with the requirement to issue an affirmative order declining it (where not exercised), means its ALJs do not issue final decisions of the Commission, so are not constitutional Officers under Article II's Appointments Clause. See Landry v. FDIC, 204 F.3d 1125 (D.C. Cir. 2000).
The Court held there was record evidence to support the Commission's holding that a flawed, inaccurate "back-testing" of investment model, with some undisclosed non-historical assumptions, violated the anti-fraud provisions of Advisors Act. The Court also upheld the sanctions imposed.
The opinion, Raymond J. Lucia Companies, Inc. v. SEC, No. 15-1345 (D.C. Cir. Aug. 9, 2016), is here.
I discussed the previous decisions, here.
Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 30 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile.
© 2016 by Thomas K. Potter, III (all rights reserved).
PartnerTom Potter is a Partner in the firm's Nashville office, and his practice focuses on securities, corporate disputes, and appellate litigation. Tom has over 35 years of experience representing business interests.
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