The U.S. Supreme Court will decide a longstanding controversy regarding the validity of the appointment process for Securities and Exchange Commission administrative law judges (ALJs). The decision will impact the appointment process for all SEC judges.

On Jan. 12, 2018, the Supreme Court agreed to review one of many cases contending that the way the ALJs are appointed violates the Constitution. At issue in the case, Lucia v. SEC, is “[w]hether administrative law judges of the Securities and Exchange Commission are officers of the United States within the meaning of the Appointments Clause.” If they are indeed officers, then all ALJs must be appointed by the president, the head of a federal agency or a court.

Although SEC enforcement actions are often litigated in federal court, other agency proceedings occur before an ALJ, a judge chosen by federal agencies themselves. It is the hiring and work of the ALJs that is at issue in Lucia. The key question is whether the ALJs have such wide authority under federal law that they should be deemed officers of the United States rather than employees of the agency.

The petitioner is former investment adviser Raymond Lucia, who was fined $300,000 and barred from working as an investment adviser after SEC ALJs found that he misled prospective clients. Lucia argues that ALJs qualify as officers of the United States and that the SEC’s ALJs who decided his case were not lawfully appointed because they were not appointed by the president, the head of a federal agency or a court. Lucia therefore argues that the fine and disbarment imposed by the ALJs are unconstitutional.

In 2016, the U.S. Court of Appeals for the District of Columbia Circuit disagreed with Lucia and held that SEC ALJs are employees of the SEC rather than officers of the United States because they do not have final decision-making power, as their decisions are reviewable by the SEC.

In July 2017, Lucia asked the Supreme Court to review the D.C. Circuit’s decision. A few months earlier, the U.S. Court of Appeals for the 10th Circuit ruled in a similar case that the SEC’s appointment of ALJs violated the Constitution and that ALJs must be appointed by the president, the head of an agency or a court. In a positive sign for Lucia, the Supreme Court has not chosen to review the 10th Circuit decision.

Recently, the Trump administration also shifted its stance on the issue and adopted the position that current appointment procedures for ALJs are unconstitutional. In late November, the Trump administration announced in a filing with the Supreme Court that the administration would no longer defend the D.C. Circuit’s decision in Lucia. In that filing, Solicitor General Noel Francisco wrote that the administration now believes that ALJs are officers of the United States, and are therefore subject to the constitutional requirement that they be appointed by the president, the head of an agency or a court.

The SEC has since begun to ratify the appointments of its ALJs in an attempt to meet that constitutional requirement. However, Lucia argues that this ratification applies only to enforcement actions still pending in the administrative process, which does not include his case. Lucia argues that he is, at minimum, “entitled to a hearing before a properly appointed [ALJ].”