After the repeated challenges to the SEC's in-house courts as previously reported, Mark Cuban joined the debate by filing an amicus curiae brief in support of petitioners Raymond J. Lucia Companies, Inc. and Raymond J. Lucia (collectively "Lucia") in Lucia v. SEC. Cuban, describing himself as a "first-hand witness to and victim of SEC overreach" in a 2013 insider trading case brought against him in an SEC court, argued that the D.C. Circuit should grant the petitioners' appeal because SEC in-house judges are unconstitutionally appointed.
Lucia's appeal stems from the SEC's prosecution of Lucia in an administrative proceeding for misleading prospective clients about the company's retirement wealth management strategy. Following trial, the SEC administrative law judge ("ALJ") ordered Lucia to cease and desist from further violations and imposed civil penalties. Lucia appealed to the SEC, challenging the ALJ appointment process. They argued that an ALJ must be appointed by the President, a department head, or a court of law. Because SEC ALJs are not appointed by any such entity, Lucia argued that the proceedings and resulting orders are invalid. After the Commission rejected this argument (further discussion found here), Lucia appealed to the D.C. Circuit.
Willing to lend a helping hand because of the "misguided SEC enforcement litigation" he faced and defeated in 2013, Cuban vowed to challenge the SEC "when it takes misguided and incorrect positions in litigation." His amicus brief makes similar arguments to those raised by Lucia and others who have challenged the SEC in-house courts: the SEC ignored the plain language of the Securities Act of 1933, which requires that an "officer" of the Commission to preside over the administrative hearing; because ALJs are not "officers" in the constitutional sense, they are overstepping their roles and acting unconstitutionally; and the legislative histories of the Securities Act, the Exchange Act, and the Administrative Procedure Act all make this clear.
The Lucia appeal is the latest in a series of actions by defendants in SEC in-house enforcement proceedings asserting that these proceedings give the agency a "home court advantage" by denying defendants the procedural and evidentiary safeguards available in federal courts. The SEC has been successful in defending the constitutionality of its procedures to date, but Lucia, Cuban, and the defense bar are hopeful that the D.C. Circuit, which has not yet addressed the issue, will provide a more favorable forum and give them traction to ultimately eliminate SEC in-house courts or at least subject them to considerable reform.
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