August 25, 2017

The Framers’ fear of concentrated power was well-founded

By Oliver J. Dunford Attorney

In 2012, the Securities and Exchange Commission charged Raymond Lucia and his former investment company with violating federal securities laws and regulations. You’d think that Mr. Lucia would be entitled to defend himself in a court of law. You’d be wrong. Congress allows the SEC (and other administrative agencies) to bring “administrative enforcement actions,” which are overseen by Administrative Law Judges (ALJs)—employees of the SEC. Here, an ALJ agreed with his employer that Lucia had violated securities laws and regulations. The ALJ permanently barred Mr. Lucia from working as an investment adviser, revoked his company’s registration, and ordered $300,000 in “civil” penalties.

As Mr. Lucia’s dilemma shows, the modern Administrative State violates the Separation of Powers doctrine by combining all three powers of government in one agency: the SEC is authorized to (1) adopt rules and regulations, (2) enforce violations of these rules and regulations, and (3) adjudicate alleged violations. One protection against this concentration of power is the Constitution’s Appointments Clause, which separates power by “defining unique roles for each branch” in appointing “Officers of the United States,” and which ensures checks and balances by preventing appointments without the cooperation of the Executive and Legislative branches. According to the Supreme Court, an “Officer” is any appointee who exercises “significant authority” pursuant to laws of the United States. But despite the significant authority exercised by the ALJ here, the D.C. Circuit Court of Appeals held that SEC ALJs are not Officers subject to the Appointments Clause. (The Tenth Circuit recently reached the opposite conclusion.) Mr. Lucia has asked the Supreme Court to review this decision.

Today, PLF filed an amicus brief in support of Mr. Lucia. We ask the Court not only to resolve the split of opinion in the lower courts, but also to use Mr. Lucia’s case to reinvigorate the Constitution’s fundamental protections of liberty guaranteed by its carefully structured separation of powers. In particular, we argue that Congress should not be allowed to sidestep the Appointments Clause by creating ALJ positions—through which ALJs have the authority to issue lifetime bans on engaging in a chosen vocation—without subjecting those ALJs to the rigors of the Appointments Clause. Reestablishing this requirement would also increase the accountability of those charged with appointing “Officers of the United States” and enforcing our laws. The Court will decide whether to hear this case in the fall.

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Lucia v. Securities and Exchange Commission

In 2012, the Securities and Exchange Commission charged Raymond Lucia and his former investment company with violating federal securities laws and regulations. He was prosecuted in an administrative enforcement action overseen by an Administrative Law Judge employed by the SEC. The ALJ permanently barred Mr. Lucia from working as an investment adviser, revoked his company’s registration, and ordered $300,000 in “civil” penalties. PLF supports Mr. Lucia’s petition asking the Supreme Court to review his case, which implicates the fundamental constitutional issue of separation of powers.

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