PRELIMINARY STATEMENT

“Plaintiffs Raymond J. Lucia Companies, Inc. (RJL) and Raymond J. Lucia, Sr. (Mr. Lucia) recently won a decision from the United States Supreme Court holding that the Administrative Law Judge (ALJ) in his enforcement proceeding before the SEC was not constitutionally appointed under the Constitution’s Article II Appointments Clause. Lucia held that the “‘appropriate’ remedy for an adjudication tainted with an appointments violation is a new ‘hearing before a properly appointed’ official …. To cure the constitutional error, another ALJ (or the Commission itself) must hold the new hearing to which Lucia is entitled.” Lucia v. SEC, 138 S. Ct. 2044, 2055 (2018). The SEC’s reinstituted enforcement action before a new ALJ remains constitutionally flawed because SEC ALJs have impermissible layers of tenure protection.

ALJs are “Officers of the United States” within the meaning of the Appointments Clause of the United States Constitution, Art. II, § 2, cl. 2, because they “hold a continuing office established by law” and exercise “‘significant discretion’ when carrying out … ‘important functions’.” Lucia v. S.E.C., 138 S. Ct. 2044, 2053 (2018). In violation of the President’s removal power, SEC ALJs may only be removed for good cause as determined by the Merit Systems Protection Board (MSPB), 5 U.S.C. § 7521(a), whose members themselves can only be removed by the President for good cause. 5 U.S.C. § 1202(d). SEC Commissioners, who have powers of appointment over ALJs, cannot act without approval from MSPB and themselves enjoy for-cause protection against removal. MFS Sec. Corp. v. SEC, 380 F.3d 611, 619-20 (2d Cir. 2004). These multiple layers of tenure protection violate the U.S. Constitution. This structural constitutional claim cannot be challenged in the enforcement proceeding before the SEC because the ALJ and the Commission lack jurisdiction and power to decide such questions.”

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