The Appointments Clause of the US Constitution requires that “inferior officers” be appointed by the President, department heads or courts of law. SEC administrative law judges, or ALJs, 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.
For those reasons, the 10th Circuit Court of Appeals found SEC administrative proceedings to be unconstitutional. In Bandimere v. United States Securities and Exchange Commission, the Court found it is unclear where the appointment buck stops at the SEC. The current hiring system would suffice under the Constitution if SEC ALJs were employees, but under current precedent they are inferior officers who must be appointed as the Constitution commands. The ALJ’s exercise significant discretion while performing “important functions” that are “more than ministerial tasks.”
Among other things, the Court noted ALJs have the authority to shape the administrative record by taking testimony, regulating document production and depositions, ruling on the admissibility of evidence, receiving evidence, ruling on dispositive and procedural motions, issuing subpoenas, and presiding over trial-like hearings. ALJs also have authority to issue initial decisions that declare respondents liable and impose sanctions.
The decision is contrary to an August 2016 decision by the U.S. Court of Appeals Court for the District of Columbia Circuit. That decision found ALJs were not inferior officers because their decisions were subject to Commission review and therefore not final.