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Buckets of Money

If you’ve lost a case against the SEC recently, and it was heard by an administrative law judge (or ALJ), you may want to call your lawyer.

Yesterday, the U.S. Supreme Court sent back a case because the SEC hadn’t appointed the ALJ the way the Constitution required. The decision marked the culmination of years-long legal challenges to the Commission’s use of ALJs in general. And it may apply to your case, too. It’s called the Buckets of Money case because the defendant got into trouble for pitching a retirement savings strategy he called, “Buckets of Money.”

The problem was the ALJ hadn’t been appointed by the Commission itself but, rather, by staff.

That was a problem because the Constitution requires that all “officers of the United States” be appointed by either the president, a head of department, or a court of law. Although the SEC qualifies as a head of department, its staff does not.

So, the case turned on whether an ALJ was a higher-level “officer” who wasn’t appointed correctly or, as the agency argued, just an ordinary federal employee who didn’t need to be.

The Court firmly held that the ALJ was an officer. After all, his power over cases resembled that of a federal trial judge. By law, he could do anything “necessary and appropriate” to ensure a fair and orderly proceeding. That included issuing subpoenas, deciding motions, ruling on evidence, administering oaths, examining witnesses, and imposing sanctions for contempt. So the Court said the case must go back for rehearing before a different, properly-appointed judge.

But it’s unclear how its decision will apply to other SEC cases or to other administrative judges in the federal government.

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