The United States District Court for the Northern District of Georgia, Atlanta Division, has entered a preliminary injunction preventing the SEC from conducting an administrative proceeding in an insider trading matter.  The Court found the plaintiff has a substantial likelihood of success on the merits of his claim that the SEC violated the Appointments Clause of the United States Constitution.

Among other things, the Appointments Clause requires that “inferior officers” be appointed by the President, department heads or courts of law.  SEC administrative law judges are not appointed by the SEC – they are hired by the SEC’s Office of Administrative Law Judges, with input from the Chief Administrative Law Judge, human resource functions and the Office of Personnel Management.  The Court looked to the powers of the administrative law judge which are functionally comparable to that of a judge in making its decision.

The Court noted that the matter could be easily cured by having the SEC Commissioners issue an appointment or preside over the matter themselves.

The Court also rejected the plaintiff’s claims that:

  • The administrative proceeding violates his Seventh Amendment right to a jury trial.
  • The Dodd-Frank Act violates the Constitution because it gives the SEC unfettered discretion to select its forum.