The Wall Street Journal: SEC to change process for hiring in-house judges after legal challenge

WASHINGTON — A gambit by the Securities and Exchange Commission to bring more enforcement actions through its in-house courts has partly backfired.

The SEC said Thursday that it was changing the way it appoints in-house judges who hear some of its enforcement cases, one day after the Justice Department sided with opponents who say their hiring was unconstitutional.

The three-member commission said it directly approved the five judges’ appointments, instead of relying on a selection process managed by human-resources officials. The commission had previously maintained their hires were valid because the judges are employees, not officers who are subject to a constitutional clause that safeguards separation-of-powers principles.

The catalyst for the change is a legal challenge filed by Raymond Lucia, a California financial adviser who was accused of misleading investors and barred from the securities industry as punishment. Lucia has appealed to the U.S. Supreme Court, arguing the SEC judge who heard his case wasn’t appointed by the commission, as the Constitution requires. The Justice Department jolted the case on Wednesday when it told the Supreme Court that it now considers the SEC’s judges to be officers like other presidential appointees.

An expanded version of this report appears on WSJ.com.

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