Are Securities and Exchange Commission (SEC) administrative enforcement proceedings constitutional? According to a recent, well-reasoned opinion issued by the US Court of Appeals for the Tenth Circuit, Bandimere v. SEC, 844 F.3d 1168 (10th Cir. 2016), the answer is no. Bandimere focuses on SEC Administrative Law Judges (ALJs), who preside over in-house, trial-type proceedings in which SEC’s enforcement staff, with the benefit of the Commission’s own slanted procedural rules, almost always succeeds in imposing liability and harsh civil penalties upon alleged violators of federal securities laws. In a 2-1 panel decision, the appeals court held that “SEC ALJs are inferior officers under the Appointments Clause.” Id. at 1179. The Appointments Clause, US Const. art. II, § 2, cl.2, requires that “inferior Officers” be appointed to their positions by the President, a court of law, or a department head. Because SEC ALJs have not been appointed in that manner, the panel majority held that they hold their positions, and adjudicate cases, “unconstitutionally.” Bandimere, 844 F.3d at 1188. The Tenth Circuit’s decision directly conflicts with the DC Circuit’s now-vacated opinion in Raymond J. Lucia Companies, Inc. v. SEC, 832 F.3d 277 (DC Cir. 2016), pet. for reh’g en banc granted (Feb. 16, 2017), which held that SEC ALJs are mere employees not subject to the Appointments Clause.
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