Supreme Court Rules SEC Practice Of Hiring ALJs Unconstitutional

The U.S. Supreme Court (the "Supreme Court") ruled that the SEC practice of hiring administrative law judges ("ALJs") was unconstitutional. In Lucia v. SEC, the Supreme Court overturned a D.C. Court of Appeals ruling and determined that ALJs are "Officers of the United States" ("Officers") and therefore subject to the Appointments Clause of the Constitution. Under the Appointments Clause, Officers must be appointed "by the President, the head of a department, or a court of law."

The Supreme Court relied on its previous decision in Freytag v. Commissioner, which held that special trial judges ("STJs") of the U.S. Tax Court were Officers because they (i) held a continuing office established by the law, and (ii) exercised significant discretion when carrying out "important functions." The "important functions" relied on by the Court in Freytag included "tak[ing] testimony, conduct[ing] trials, rul[ing] on the admissibility of evidence, and hav[ing] the power to