Joshua D. Roth is partner, Justin J. Santolli is special counsel, and J. Zachery Morris is an associate at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication by Mr. Roth, Mr. Santolli, and Mr. Morris.
On June 21, 2018, the Supreme Court resolved a circuit split concerning the constitutionality of the U.S. Securities and Exchange Commission’s (“SEC”) administrative law judges (“ALJs”). In Lucia v. Securities and Exchange Commission, — U.S. —, 2018 U.S. LEXIS 3836 (June 21, 2018), the Court held that SEC ALJs are “officers of the United States,” and thus subject to the Constitution’s Appointments Clause, which limits the power to appoint “officers” to the President, “Courts of Law” or “Heads of Departments.” Because the ALJ who presided over Lucia’s administrative proceeding was not appointed by the SEC itself (the functional equivalent of a “Head of Department”), the Court held that the ALJ’s appointment was unconstitutional and ordered the SEC to provide Lucia with a new hearing in front of a new (constitutionally appointed) ALJ. The Court threw out the SEC’s prior order finding Lucia and his firm liable for securities violations and imposing monetary and equitable sanctions. As discussed further below, the Court’s decision will likely have a significant effect on many pending and already-concluded SEC administrative proceedings but also leaves a number of questions unanswered.
