On December 27, 2016, the Tenth Circuit Court of Appeals held in Bandimere v. United States Securities and Exchange Commission that the SEC administrative law judge (ALJ) is an “inferior officer” within the meaning of the Appointments Clause of the U.S. Constitution.
In 2012, the SEC brought an administrative action against Mr. Bandimere alleging he violated various securities laws for operating as an unregistered broker in selling unregistered investments. An SEC ALJ presided over a trial-like hearing. At the end of the hearing, the ALJ concluded that Mr. Bandimere violated securities laws and imposed sanctions.
On review to the Tenth Circuit, the sole question was whether SEC ALJs are inferior officers under the Appointments Clause. The Appointments Clause states that “Congress may by Law vest the Appointment of such inferior Officers as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.” Mr. Bandimere argued the ALJ was an inferior officer who had not been appointed under the Appointments Clause. Mr. Badimere reasoned that ALJ positions are established by law and their duties, salary, and means of appointment are specified by statute. Furthermore, SEC ALJs exercise significant discretion in carrying out important functions. The SEC disagreed, arguing ALJs are not inferior officers because they cannot render final decisions and the agency retains authority to review ALJs’ decisions de novo. In the decision, the Tenth Circuit agreed with Mr. Bandimere and held that “the SEC ALJs are inferior officers who must be appointed in conformity with the Appointment Clause.” This recent Tenth Circuit decision potentially opens a constitutional avenue to challenge SEC ALJ opinions in federal courts.
Keywords: securities litigation, SEC, Appointments Clause, ALJ