SEC In-House Court Ruled Constitutional
Earlier this week, the U.S. Securities and Exchange Commission (“SEC”) scored a significant victory when a panel at the U.S. Court of Appeals Court for the D.C. Circuit (“D.C. Court of Appeals”) ruled that the appointment process of the SEC’s in-house judges is consistent with the U.S. Constitution. The victory is especially significant in light of the dozens of similar cases pending in various federal courts across the United States. Those cases include claims that the SEC’s process of appointing its in-house judges is unconstitutional since judges are hired through the SEC’s office of in-house judges rather than appointed by the SEC. Many lower courts were persuaded by this argument and ruled that the process is unconstitutional.
The D.C. Court of Appeals disagreed, holding that since the decisions of the SEC judges are subject to judicial review and not final, they do not need to be appointed by the SEC. The D.C. Court of Appeals stated that the in-house judges have “neither have been delegated sovereign authority to act independently of the Commission nor, by other means established by Congress, do they have the power to bind third parties, or the government itself, for the public benefit.” The decision is a setback for defendants and their attorneys who prefer to defend cases in federal court where they arguably have broader rights, such as pre-trial evidence collection and depositions. More information about the D.C. Court’s decision can be found here.
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About Christine Goodrich
Christine E. Goodrich is a Senior Associate with Faruqi & Faruqi, LLP’s New York City office. Ms. Goodrich’s practice is focused in securities arbitration, litigation and regulation.