Lucia sues the SEC again – challenging ALJ Constitutionality and seeking dismissal


A new lawsuit filed in federal court in California seeks to have further SEC ALJ proceedings against former IA Ray Lucia dismissed, claiming the ALJ system remains unconstitutional because judges can only be fired via the civil service system.

The latest legal twist in this six year-old case follows Lucia’s victory before the U.S. Supreme Court in June (IA Watch, June 22, 2018). That ruling found the SEC ALJ system unconstitutional because of the way the judges are hired. The High Court ordered that the fraud case against Lucia and his former San Diego-based IA, Raymond J. Lucia Companies, be returned to the SEC to be decided by a different ALJ than the one who ruled in 2013.

Two years later, by a 3-2 Commission vote, Lucia (pronounced “loo-chee-aa”) – who has spent decades in the industry – was banned and fined for allegedly misleading investors who came to his seminars and saw hypothetical back-tested performance data presented on PowerPoint slides.

Lucia appealed his case to the U.S. Court of Appeals for the District of Columbia, which ruled against him in 2016. Then Lucia took his case to the High Court.

New issue: How ALJs are dismissed

The new lawsuit, filed by the New Civil Liberties Alliance (IA Watch, Aug. 30, 2018), asserts the Constitution holds that officers like ALJs should be removed by the executive branch, not civil service rules.

Supreme Court Justice Stephen Breyer hinted at this legal argument in dissenting with his colleagues’ ruling in June.

The new lawsuit also claims the SEC has violated “its own rules, deadlines and procedures,” has harmed Lucia’s defense due to the passage of time (the seminars ended in 2010) and the ALJ system is biased because the judges are “beholden to the same entity that has not only promulgated the applicable rules but is also prosecuting the action.” The plaintiffs also seek that the current ALJ proceedings against Lucia be stayed pending the lawsuit’s conclusion.

“Mr. Lucia has lost the ability to make a living in his chosen profession and indeed in any profession. The word ‘fraud’ has destroyed his reputation,” the legal filings read. His defense expenses have topped $1 million, according to court papers (IA Watch, June 28, 2018).

Originally posted in Regulatory Compliance Watch on November 29, 2018.