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Supreme Court and Appellate and Securities & Derivatives Enforcement and Regulatory Update

Supreme Court Rules Against SEC in ALJ Appointments Case

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On June 21, the Supreme Court held in Lucia v. SEC that U.S. Securities and Exchange Commission administrative law judges (ALJs) are “Officers of the United States” within the meaning of the Constitution’s Appointments Clause. That decision vindicates the numerous parties who have challenged the legitimacy of the SEC’s administrative enforcement actions because the Commission’s five ALJs were hired by Commission staff rather than, as the Appointments Clause requires, “the President alone, [] Courts of Law, or [] Heads of Departments.” The implications of Lucia will reverberate through the SEC’s enforcement program, despite the Commission’s attempt, prior to the Court’s decision, to inoculate its ALJs from an adverse result. Moreover, Lucia poses significant questions as to whether agencies across the federal government will need to revise their processes for selecting hearing officers and other officials to avoid future Appointments Clause challenges.

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