In response to the U.S. Supreme Court’s June 21, 2018 decision in Lucia v. SEC, No. 17-130, holding that administrative law judges (ALJs) at the U.S. Securities and Exchange Commission (SEC) had been improperly appointed because they had been appointed by SEC staff rather than the President or the full SEC, which was discussed in our June 27, 2018 blog post, the SEC issued an August 22, 2018 order explaining how it would now proceed on pending cases affected by the Lucia ruling.
The SEC order stated that the SEC would begin to rehear some 128 cases that were pending before its ALJs, including the very case against investment adviser Raymond Lucia that had led to the Supreme Court’s Lucia ruling in June. Those cases had been stayed since the Supreme Court’s ruling. The SEC order stated that the full SEC had now reaffirmed the appointments of the same five ALJs who had been hearing cases before the Supreme Court’s ruling. The SEC’s order formally ends the stay, and provides for these pending cases to be reheard by a different ALJ, who would start each case afresh if the respondent in the case so wished. In any event, the SEC’s order provides that the assigned ALJ “shall not give weight to or otherwise presume the correctness of any prior opinions, orders, or rulings issued in the matter.” Moreover, previously-set case deadlines are to be vacated and adjusted in accordance with guidelines set down in the order.
The SEC’s order appears to respond to two key parts of the Supreme Court’s ruling in Lucia: first, that SEC ALJs must be appointed either by the President or the full SEC, and second, that cases that had been started under an improperly appointed ALJ would need to be referred to a different properly appointed ALJ who had not been involved with that case during its earlier stage. The order provides an efficient plan for resuming the pending cases consistent with the Lucia ruling. Apart from resulting in a few months’ delay from the now-terminated stay, and the need in some cases to re-do certain portions of prior proceedings in these matters, it remains to be seen if the Lucia ruling will ultimately have any practical impact on the outcome of these pending cases or if it will turn out to be little more than the tidying up of constitutional niceties that are far more significant to constitutional scholars than to investors, brokers, advisers, issuers and other participants in US securities markets.