United States: Supreme Court Boots SEC ALJ In Lucia v. SEC: Could This Decision Fuel The Constitutional Questions Surrounding The CFPB?

Last Updated: September 3 2018
Article by Abigail Storm

 On June 21, 2018, the Supreme Court of the United States remanded to the Securities and Exchange Commission (SEC) an administrative proceeding against Raymond Lucia to be tried by a different administrative law judge (ALJ) because the original ALJ who issued the initial decision against Lucia was improperly appointed.1 In the wake of constitutional questions involving the Consumer Financial Protection Bureau (CFPB), the Lucia decision could affect more than just the SEC.

The SEC charged Raymond Lucia under the Investment Advisers Act for using misleading slideshow presentations to deceive prospective clients. The SEC assigned ALJ Cameron Elliot to adjudicate the case. In the initial decision, Elliot concluded that Lucia violated the act and imposed sanctions, including civil penalties of $300,000 and a lifetime bar from the investment industry. On appeal to the SEC, Lucia argued that the administrative proceeding was invalid because ALJ Elliot was not properly appointed pursuant to the requirements of the Appointments Clause of the Constitution.2 The SEC rejected Lucia's argument, stating that SEC ALJs are mere employees—not "Officers of the United States"—and, therefore, fall outside the Appointments Clause's ambit. The Court of Appeals for the DC Circuit upheld the SEC's determination, and Lucia filed a petition with the Supreme Court. Notably, once this matter reached the Supreme Court, the Department of Justice, which had up until that point defended the SEC's position, switched sides. Therefore, the Court appointed amicus curiae to defend the lower court's judgment.

In reversing the lower court, the Supreme Court explained that the Appointments Clause prescribes the exclusive means of appointing "Officers."3 Specifically, only the president, a court of law or a head of department can do so. The Supreme Court noted that none of these actors appointed the SEC ALJ who heard Lucia's case; instead, SEC staff members gave the ALJ his position. The Supreme Court then turned to the question of whether the SEC's ALJs are "Officers of the United States" or simply employees of the federal government.4

The Supreme Court used the analyses from Freytag v. Commissioner,5 where the Court determined that "special trial judges" (STJs) of the United States Tax Court are officers because they: (1) hold a continuing office established by law; (2) hold significant responsibilities, including taking testimony, conducting trials, ruling on the admissibility of evidence and having the power to enforce compliance with discovery orders; and (3) may exercise significant discretion. The Supreme Court determined that, like Tax Court STJs in Freytag, SEC ALJs hold a continuing office established by law and exercise significant discretion when carrying out the same important functions. The Supreme Court stated that SECALJs could also playa more autonomous role, because the SEC can decide against reviewing an ALJ decision, in which case the ALJ's decision becomes final and is deemed the action of the SEC. The Supreme Court determined that the SEC's ALJs are "Officers of the United States," subject to the Appointments Clause and ALJ Elliot was not properly appointed. To cure the constitutional error, the Supreme Court stated that another ALJ (or the SEC itself) must hold a new hearing for Lucia.6

The Supreme Court's decision depended upon the particular facts and circumstances of this administrative proceeding. However, the holding may affect appointments of other "inferior officers" in other federal agencies depending on the particular ALJ appointment, hiring process and applicable governing statutes. For example, the Court's ruling may impact the ALJs at the CFPB with a similar structure; decisions issued by ALJs who were in the SEC system but deciding cases for the CFPB; and the pending matter addressing the appointment of the acting director of the CFPB in English v. Trump.

Recently, the various structures and operations of the CFPB are being questioned by cases such as English v. Trump and PHH Corporation v. Consumer Financial Protection Bureau.7 Over the past year, Hunton &Williams LLP (now Hunton Andrews Kurth LLP) has released articles discussing the reform efforts related to the CFPB.8 Currently, CFPBALJs are appointed for life under the Administrative Procedure Act9 through a procedure administered by the Office of Personnel Management. However, similar to SECALJs, CFPB ALJs administer formal proceedings and release opinions that go to the CFPB director. Moreover, the ALJs have complete judicial independence from the CFPB. As courts continue to analyze the constitutionality of the appointment of Acting Director Mulvane and the CFPB's exercise of executive power, the Lucia decision may lead to CFPB ALJ scrutiny.

We will continue to follow these issues and keep you updated.


1 Lucia v. S.E.C., No. 17-130, 2018 WL 3057893 (U.S. June 21, 2018).

2 Art. II, §2, cl. 2.

3 Lucia, No. 17-130, 2018 WL 3057893 at *3.

4 Id. at *5.

5 501 U.S. 868 (1991).

6 Lucia, No. 17-130, 2018 WL 3057893 at *8.

7 PHH Corporation v. Consumer Financial Protection Bureau, 839 F. 3d 1 (D.C. Cir. 2016), rehearing en banc granted, order vacated (D.C. Cir. 2017), reversed en banc, 881 F.3d 75 (Jan. 31, 2018).

8 See https://www.hunton.com/en/insights/dodd-frank-reform-alerts.html for the series of articles related to this topic.

9 5 U.S.C. § 500 et seq.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions