An investment advisor could not convince the D.C. Circuit that the recent Supreme Court decision in SEC v. Lucia meant an end to his legal troubles. Instead of setting aside an SEC administrative law judge (ALJ)’s multi-million dollar judgment against the investment advisor and his firm, the D.C. Circuit remanded the case back to the agency for a new hearing before a different ALJ.

In its June 2018 Lucia decision, the Supreme Court found that the way in which the SEC appointed its administrative law judges was unconstitutional and, accordingly, that the hearings over which they presided were unconstitutional. In November 2017, while the case was pending before the Supreme Court, the SEC undertook to fix the defective appointment process by having the appointments of all of its then-current ALJs ratified by the commissioners themselves and requiring all future ALJs to be hired in the same way. Prior to that, the judges had been hired by non-commissioner agency employees.

In the case before the D.C. Circuit, an SEC in-house judge, following an evidentiary hearing and briefing by the parties, found that investment advisor Wing Chau—who was depicted in Michael Lewis’s book “The Big Short” and film of the same name—and his company, Harding Advisory LLC, had misled investors and violated their fiduciary duties to investors in connection with an investment in a collateralized debt obligation and related interactions with a hedge fund. The ALJ entered a $5.8 million disgorgement order and a $425,000 fine against Harding and a $170,000 fine against Chau. In addition, the judge revoked Harding’s investment advisor registration and imposed a bar of at least five years with regard to Chau. The SEC’s commissioners subsequently upheld the ALJ’s decision.

Chau and Harding argued the Lucia case mandated the setting aside of defective ALJ decisions. They claimed that because the decision’s mention of “remand” was little more than a footnote, it carried no weight. The three-judge panel of the D.C. Circuit disagreed, finding such language was to be treated as authoritative. It held that the decision merely required a remand—although to a different ALJ than the one who had presided over the case initially—rather than the wholesale tossing out of the verdict.

While defendants with similar cases pending in other circuit courts may argue that a different conclusion should be reached, this decision from the influential D.C. Circuit is likely to have a significant impact on what happens to SEC cases across the country decided by then-improperly appointed ALJs.