Lucia v. Securities and Exchange Commission
CASE SUMMARY
In 2018, NCLA filed a complaint seeking declarative and injunctive relief against the U.S. Securities and Exchange Commission (SEC) in the U.S. District Court for the Southern District of California in the case of Ray Lucia and his former company. The suit before Judge Sabraw sought to prevent Mr. Lucia from being compelled to submit—yet again—to a proceeding before an unconstitutional Administrative Law Judge (ALJ) at the SEC. NCLA also represented Mr. Lucia in the related matter remanded for hearing before “a properly appointed official … or the Commission itself.”
Mr. Lucia suffered irreparable professional, reputational and financial harm from the SEC’s first unconstitutional proceeding. He subsequently endured several years of protracted litigation successfully taking his case all the way to the U.S. Supreme Court based on the argument that the first ALJ he appeared before was improperly appointed.
Rather than retrying the remanded Lucia case before the Commission itself or in federal district court, as it easily could have done, the SEC chose to proceed once again in front of a constitutionally defective ALJ. That time, the SEC knew full well that the ALJ is defective, because the U.S. Solicitor-General conceded as much in filings and argument before the U.S. Supreme Court. The problem was that the ALJ enjoyed multiple layers of protection from removal, which the Supreme Court had deemed unconstitutional. Mr. Lucia also had remaining constitutional objections.
On June 16, 2020, NCLA finally negotiated a settlement with the U.S. Securities and Exchange Commission (SEC) on behalf of its clients. Mr. Lucia waged a long, contentious battle, refusing to bow to an agency with unlimited resources unwilling to admit that its prosecution efforts had become wholly disproportionate to the alleged infraction. Having fought this landmark case all the way to the U.S. Supreme Court once to vindicate his right to be tried before a lawfully appointed administrative law judge (ALJ), this settlement allowed Ray to get on with his life.
In the settlement, Mr. Lucia neither admited nor denied wrongdoing, and he was immediately eligible to reapply for association with registered entities such as securities brokers as well as to serve as an employee for related entities. In exchange for the final resolution of all claims against him, Mr. Lucia agreed to pay a penalty of $25,000 and to drop his affirmative case against SEC.
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Settled
CASE START DATE:
October 2, 2018
ORIGINAL COURT:
U.S. Securities and Exchange Commission Administrative Proceeding
10/2/2018 proceedings recommenced
JUDICIAL COURT IN WHICH NCLA BROUGHT SUIT:
United States District Court for the Southern District of California, San Diego
11/29/2018
Factual Background
In 2012, Mr. Lucia, who had an unblemished record as a financial advisor, was charged by the SEC which principally objected to his use of the word “backtest” in his seminars advocating an investment strategy of diversification of retirement savings into “buckets” of safer to riskier investments and spending from the safer investments first in order to allow the riskier ones time to grow. This is an uncontroversial and widely-advocated strategy in the retirement planning industry and in academic studies. No law of Congress or rule of the SEC ever defined “backtest” or expressed concern about the use of this word. Prior to 2010, Mr. Lucia used the word “backtest” to illustrate a strategy that combined actual historical data for stock-market returns with hypothetical assumptions about inflation and returns on non-stock investments. When SEC objected to it in 2010, Mr. Lucia immediately stopped using the term, even though it has been freely and widely used in this manner by others in the industry without penalty or objection by the SEC.
Though no investor had suffered losses or even complained to the SEC about Mr. Lucia, two years later, the SEC brought a 2012 administrative trial for his prior but by then long-discontinued use of “backtest” on the newly announced theory that his use of it had constituted “fraud.” SEC chose to bring this disturbingly novel and unfair case before one of the in-house judges employed by the very agency prosecuting Mr. Lucia!
Administrative Law Judges were originally set up to decide minor regulatory matters without the expense and delay of full-blown judicial trials. In recent years their jurisdiction has broadened, and they have been newly empowered to order devastating and career-ending penalties. The SEC and other agencies have admitted that they prefer these forums, no doubt because they enable unaccountable bureaucrats to secure easy “wins” before structurally biased ALJs at the cost of Americans’ civil liberties.
Mr. Lucia was tried before an administrative law judge, Cameron Elliot, who openly boasted that he had never found against the SEC and who also informed persons charged by the SEC and brought before him for judgment that he had never ordered anything less than a lifetime bar—an occupational death penalty—to anyone who contested the SEC’s charges.
Given such blatant bias, it came as no surprise that ALJ Elliot leveled draconian penalties on Mr. Lucia including hundreds of thousands in fines and a lifetime ban from his chosen profession, including barring him from any future communication with his own son! Because Mr. Lucia’s use of “backtest” did not “meet the definition of ‘backtest’ that I have adopted,” the biased ALJ called it fraud.
That impoverishing, six-week so-called trial deprived Mr. Lucia of due process, advance notice that his use of this word would be deemed unlawful, a jury trial, discovery rights, evidentiary protections, and it altered his burden of proof. Worse, the SEC engaged in flagrant witness intimidation by scaring off any witness willing to speak on Mr. Lucia’s behalf by demanding from them production of five years of their own financial records before they could testify.
On appeal to the full SEC Commission, two of the five Commissioners dissented, recognizing that the ALJ had improperly created a new rule out of whole cloth. Ben Stein, who attended Ray Lucia’s seminars, knows the facts behind the case and the injustice meted out by “one agency [when it] arrogates to itself the power to investigate, prosecute, and judge these cases.”
Punishing with Process
NCLA contended that governments must bring only valid cases in a timely fashion before lawful courts that accord due process of law. As for Ray Lucia, even after winning at the highest court in the land on the point that his prosecution was unconstitutional from its inception, he faced unknown, brutalizing years ahead in an administrative wasteland. If he had fought on and justly won on his removal challenge, he may have had to have his case retried a third time in a federal district court or before the Commission—that was, before the only tribunals in which these charges could ever have lawfully have been brought in the first place. Seven years, over a million dollars in legal fees, a ruined business, a tarnished reputation and an occupational death penalty later compeled the conclusion that it was long past time for justice to prevail here.
CASE DOCUMENTS
June 16, 2020 | Order Making Findings and Imposing Remedial Sanctions and a Cease-And-Desist Order
January 29, 2020 | Appellants’ Opening Brief in the United States Court of Appeals for the Ninth Circuit
January 23, 2020 | Order Denying Appellants’ Motion for an Injunction Pending Appeal
January 9, 2020 | Appellants’ Reply Brief in Support of Their Motion for Injunction Pending Appeal
December 04, 2019 | Appellants' Opposed Motion for Injunction Pending Appeal
At ruinous cost Mr. Lucia and RJL litigated for six years through five layers of administrative and court proceedings before their constitutional claims were conclusively decided—in their favor—by the highest court in the land. That ruling nullified all that came before. SEC’s renewed enforcement action threatens to put the Lucia plaintiffs through a repeated years-long exercise in futility. This suit seeks to prevent such an unjust, destructive, and Kafkaesque outcome. The plaintiffs’ constitutional claim must be addressed in a court of law.
Click to read the full Appellants’ Opposed Motion for Injunction Pending Appeal
August 21, 2019 | Order Granting Defendants’ Motion to Dismiss and Denying Plaintiffs’ Motion for Preliminary Injunction as Moot
July 18, 2019 | Lucia Motion for Certification for Interlocutory Appeal
Pursuant to Rule 400 of the Commission’s Rules of Practice, Respondents, Raymond J. Lucia, Sr. and Raymond J. Lucia Companies, Inc. move to certify for interlocutory appeal to the full Securities and Exchange Commission the question of whether this Administrative Law Judge is unconstitutionally insulated from removal by the President in violation of Article II of the United States Constitution. This issue, which was left open by the Supreme Court, goes to the heart of this ALJ’s ability to preside over this matter, and thus should be decided by the Commission itself as soon as possible. Simply put, if this ALJ is presiding over this matter in violation of Article II, then this remanded proceeding will face the same fate the first administrative proceeding faced in this very case. Such an outcome is patently unfair for Respondents, but also hardly serves the Division of Enforcement’s interests. This ALJ should therefore certify this question for interlocutory appeal to the Commission.
July 10, 2019 | Lucia Memorandum in Opposition to Motion to Dismiss Complaint
March 15, 2019 | Reply Memorandum of Points and Authorities in Support of Plaintiffs’ Motion for Preliminary Injunction
December 31, 2018 | Lucia v. SEC Respondents’ Reply Brief
I. DISCUSSION
“A. This ALJ Cannot Avoid Violating Article II of the United States Constitution by Adopting the Division’s Statutory Interpretation.
In the hopes of avoiding what it recognizes as a dire Article II problem that makes this proceeding unconstitutional, the Division has ignored the Supreme Court’s ruling in this very case and has presented arguments already rejected by the Court. Indeed, the Division relies on two arguments to avoid this “embedded constitutional question,” both of which were presented by the Solicitor General to the United States to the Supreme Court. See Lucia v. S.E.C., 138 S. Ct. 2044, 2060 (2018) (Breyer, J., concurring). But neither argument carried the day before the Court, and, as Justice Breyer noted, the Court’s opinion in Lucia, merely clarified the constitutional problem underlying this proceeding. See id.
Initially, it must be noted that the Division appears to concede that the tenure protections governing this ALJ violate Article II, at least if they are interpreted in their most natural sense. See Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 483 (2010) (If “the President cannot remove an officer who enjoys more than one level of good-cause protection,” and “[t]hat judgment is instead committed to another officer, who may or may not agree with the President’s determination, and whom the President cannot remove simply because that officer disagrees with him,” then this will contravene the President’s “constitutional obligation to ensure the faithful execution of the laws.”). This is hardly surprising, as the Solicitor General already identified this issue as “raising serious constitutional concerns,” which render these administrative proceedings subject to constitutional infirmity. Brief of Solicitor General for Respondent, Securities and Exchange Commission, Lucia v. S.E.C., 138 S.Ct. 2044, (No. 17- 130) at 45, 46. Indeed, the Division’s sole line of attack is to rely on “constitutional avoidance principles,” to try to salvage the scheme at issue here. (Division Opp. at 14.)”
December 6, 2018 | Declaration of Raymond J. Lucia, Sr. In Support of Plaintiffs’ Motion for Preliminary Injunction
“I, RAYMOND J. LUCIA, SR. declare under penalty of perjury that the following is true:
1. I am a 68 year-old resident of San Diego, California and a citizen of the United States. I make this declaration in support of Plaintiffs’ Motion for Preliminary Injunction.
2. I began working in the field of retirement planning in the insurance industry in 1974. I became an investment professional advising clients about retirement strategies in approximately 1985. During my roughly 40-year career, I founded several companies, employed scores of people, advised hundreds of clients, wrote three books on retirement planning, and hosted “The Ray Lucia Show,” a nationally syndicated, live call-in, radio and TV show. Until December 15, 2011, I was a registered investment advisor.
3. Before the SEC filed its enforcement proceeding against me in September 2012, neither I nor Raymond J. Lucia Companies, Inc. had ever been fined or disciplined by the SEC or any other regulatory body nor the subject of any disciplinary proceeding.”
December 6, 2018 | Lucia v. SEC Motion for Preliminary Injunction
“Pursuant to Rule 65 of the Federal Rules of Civil Procedure, Plaintiffs Raymond J. Lucia Companies, Inc. (RJL) and Raymond J. Lucia, Sr. (Mr. Lucia) hereby move for a preliminary injunction enjoining Defendants from carrying out a reinstituted administrative proceeding under the Order Instituting Administrative and Cease-andDesist Proceedings (OIP) issued by Defendant U.S. Securities and Exchange Commission (SEC or Commission) on September 5, 2012.
As set forth more fully in the Memorandum of Points and Authorities in Support of Plaintiffs’ Motion for Preliminary Injunction, a preliminary injunction is appropriate for all of the following non-exclusive reasons:…”
December 6, 2018 | Lucia v. SEC Memorandum of Points and Authorities in Support of Plaintiffs’ Motion For Preliminary Injunction
PRELIMINARY STATEMENT
“Plaintiffs Raymond J. Lucia Companies, Inc. (RJL) and Raymond J. Lucia, Sr. (Mr. Lucia) recently won a decision from the United States Supreme Court holding that the Administrative Law Judge (ALJ) in his enforcement proceeding before the SEC was not constitutionally appointed under the Constitution’s Article II Appointments Clause. Lucia held that the “‘appropriate’ remedy for an adjudication tainted with an appointments violation is a new ‘hearing before a properly appointed’ official …. To cure the constitutional error, another ALJ (or the Commission itself) must hold the new hearing to which Lucia is entitled.” Lucia v. SEC, 138 S. Ct. 2044, 2055 (2018). The SEC’s reinstituted enforcement action before a new ALJ remains constitutionally flawed because SEC ALJs have impermissible layers of tenure protection.
ALJs are “Officers of the United States” within the meaning of the Appointments Clause of the United States Constitution, Art. II, § 2, cl. 2, because they “hold a continuing office established by law” and exercise “‘significant discretion’ when carrying out … ‘important functions’.” Lucia v. S.E.C., 138 S. Ct. 2044, 2053 (2018). In violation of the President’s removal power, SEC ALJs may only be removed for good cause as determined by the Merit Systems Protection Board (MSPB), 5 U.S.C. § 7521(a), whose members themselves can only be removed by the President for good cause. 5 U.S.C. § 1202(d). SEC Commissioners, who have powers of appointment over ALJs, cannot act without approval from MSPB and themselves enjoy for-cause protection against removal. MFS Sec. Corp. v. SEC, 380 F.3d 611, 619-20 (2d Cir. 2004). These multiple layers of tenure protection violate the U.S. Constitution. This structural constitutional claim cannot be challenged in the enforcement proceeding before the SEC because the ALJ and the Commission lack jurisdiction and power to decide such questions.”
November 29, 2018 | Lucia v. SEC Motion for An Order Dismissing the Proceedings And Memorandum of Law In Support Thereof
November 28, 2018 | Lucia v. SEC. et al Complaint for Declaratory and Injunctive Relief
Preliminary Statement
“1. This action arises from the SEC’s attempt to subject Raymond J. Lucia Companies, Inc. and Raymond J. Lucia, Sr. to an unconstitutional administrative proceeding before an Administrative Law Judge (ALJ) whose appointment violates Article II of the United States Constitution. In violation of the President’s removal power, SEC ALJs may only be removed for good cause as determined by the Merit Systems Protection Board (MSPB), 5 U.S.C. § 7521(a), whose members themselves can only be removed by the President for good cause. 5 U.S.C. § 1202(d). SEC Commissioners, who have powers of appointment over ALJs, cannot act without approval from MSPB and themselves enjoy for-cause protection against removal. MFS Sec. Corp. v. SEC, 380 F. 3d 611, 619-20 (2d Cir. 2004). These multiple layers of tenure protection violate Article II of the United States Constitution.”
February 28, 2018 | Amicus Brief- Amicus Curiae in support of petitioners, Raymond J. Lucia, et al v. Securities Exchange Commission (No. 17-130)
SUMMARY OF ARGUMENT
“The petitioners and the Solicitor General have capably explained why SEC administrative-law judges qualify as “officers of the United States,” who must be appointed in accordance with the process described in Article II of the Constitution. See Pet. Br. at 11–42; Resp. Br. at 10–38. NCLA writes as amicus to explain that the ostensible rationale for departing from the Constitution’s appointment process — a desire to produce “independent” administrative-law judges — is inapplicable in this case, as the SEC’s appointment process has failed to secure independent adjudication in any meaningful sense of the word.
SEC ALJs face significant institutional pressures to conform to the Commission’s enforcement policy preferences. Not only must SEC ALJs follow agency rules, interpretations, and policies, but they also lack subjectmatter expertise when appointed. This lack of prior expertise makes SEC ALJs vulnerable to pro-agency bias of various kinds, which they may not even recognize given how the bias is baked into agency precedent.
Avoiding the Appointments Clause has produced neither independence nor expertise among ALJs— quite the contrary. Hearings in front of ALJs at the SEC nowadays are neither impartial nor particularly expert. There is no reason for this Court to fear that declaring administrative-law judges to be “officers of the United States” will undermine the independence (or expertise) of agency adjudication, because the SEC’s administrative-law judges are short of independence and expertise to begin with. More effective and constitutionally permissible paths are available to secure independent judges in SEC proceedings.”
PRESS RELEASES
June 17, 2020 | Ray Lucia’s Sweetheart Settlement Proves that for the SEC the Sour Process Is the Punishment
Washington, DC (June 16, 2020) – The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights organization, has negotiated a settlement with the U.S. Securities and Exchange Commission (SEC) on behalf of its clients, Ray Lucia Sr. and Raymond J. Lucia Companies. Mr. Lucia waged a long, contentious battle, refusing to bow to an agency with unlimited resources unwilling to admit that its prosecution efforts had become wholly disproportionate to the alleged infraction. Having fought this landmark case all the way to the U.S. Supreme Court once to vindicate his right to be tried before a lawfully appointed administrative law judge (ALJ), this settlement allows Ray to get on with his life.
In the settlement, Mr. Lucia neither admits nor denies wrongdoing, and he is immediately eligible to reapply for association with registered entities such as securities brokers as well as to serve as an employee for related entities. In exchange for the final resolution of all claims against him, Mr. Lucia has agreed to pay a penalty of $25,000 and to drop his affirmative case against SEC.
From 2012 to 2017, SEC maintained a litigation position against Mr. Lucia that proved so erroneous that the Department of Justice took the extraordinary step of repudiating SEC’s initial position at the Supreme Court. Yet, in defiance of the Supreme Court’s admonition to retry Mr. Lucia before a lawfully appointed ALJ, SEC haled him before yet another ALJ who was and is just as unconstitutional as the first one. Ray will never get these years back. And yet Ray’s presentation had been cleared by regulators numerous times, no client had complained about Ray to the SEC when it took issue with his business practices, Ray immediately offered to change the language to which SEC objected, and no SEC regulation or ruling had ever previously prohibited the language that he used.
Ray’s affirmative case, which has been pending in the U.S. Court of Appeals for the Ninth Circuit, contends that the ALJs at the SEC are still unconstitutional, because they benefit from multiple layers of protection from removal—a position also urged by the SEC’s counsel, the Solicitor General in that very case. The U.S. Supreme Court held in 2010 that such multiple layers of removal are unconstitutional for federal officers, because they violate the “take Care” provision of Article II of the Constitution under which the President must be able to fire his subordinates. When the Supreme Court held two years ago this week in Lucia v. SEC that ALJs are federal officers, it set the stage for the current constitutional challenge to those appointees.
This nominal fine represents a tiny fraction of the penalty sought by the SEC when it first filed charges against Mr. Lucia in 2012, and he has already incurred more than 40 times this amount while defending his constitutional rights. Mr. Lucia’s commitment to go up against the powerful agency—for what he considered an unfair prosecution—also cost him irreparable professional, reputational, economic and emotional harm that few would dare to endure. The terms of this settlement pale in comparison to what Mr. Lucia has been put through, and it only goes to show that at the SEC the process is the punishment.
Rather than retrying the Lucia case before the Commission itself, the SEC ignored its due process obligation to bring enforcement actions in a lawful forum. Instead it doubled down on its unconstitutional process and sought to force Mr. Lucia back through a second, pointless unconstitutional administrative process that would deprive him of the right to challenge the ALJ’s appointment until long after the unconstitutional proceeding and multiple appeals had taken place at great personal and further professional expense. Rather than endure yet another decade of devastating and drawn-out administrative punishment, Mr. Lucia has finally settled his case on favorable terms.
While Mr. Lucia’s case is now over, NCLA currently represents Christopher M. Gibson and Michelle Cochran whose cases are two of more than one-hundred invalid SEC hearings nullified following the Lucia v. SEC decision and who are currently carrying on the fight to stop SEC from subjecting them to hearings before similarly unconstitutional ALJs.
NCLA released the following statements:
“NCLA is happy that Ray Lucia’s ordeal is over. But the harm to Ray, his family, and his business is irreparable. This case is a wrenching example of annihilation by unlawful process. It never should have been brought in the first place. No rational—or constitutional—justice system would require such endless appeals and futile proceedings. NCLA looks forward to continuing the fight on behalf of other Americans caught in this Kafkaesque nightmare.”—Peggy Little, Senior Litigation Counsel, NCLA. ”
—Peggy Little, Senior Litigation Counsel, NCLA
“The Supreme Court recognized the SEC was wrong when it brought this case in 2012. But rather than defend its actions in court the agency settled for pennies on the dollar years later after having put Mr. Lucia through a punishing process. NCLA will not rest in our fight against administrative overreach on behalf of our clients.”
—Caleb Kruckenberg, Litigation Counsel, NCLA
“Ray Lucia’s heroic effort to stand up for due process and constitutional law and against retroactive regulation deserves a chapter in the annals of Administrative State David-and-Goliath stories. Someday soon, with NCLA’s help, the Supreme Court will strike down SEC’s unconstitutional ALJs. Until then Ray can rest easy knowing that he did his part to right this wrong—and then some.”
—Mark Chenoweth, Executive Director and General Counsel, NCLA
ABOUT NCLA
NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.
December 04, 2019 | NCLA Asks Ninth Circuit Court of Appeals to Halt Unconstitutional SEC Hearing
Washington, DC— The New Civil Liberties Alliance today filed a motion with the U.S. Court of Appeals for the Ninth Circuit asking it to enjoin an administrative proceeding by the U.S. Securities & Exchange Commission (SEC) against NCLA’s clients, Ray Lucia and the Raymond J. Lucia Companies, Inc. Specifically, NCLA wants the Ninth Circuit to stop the SEC hearing until the court can decide whether the district court has subject-matter jurisdiction to hear Mr. Lucia’s constitutional objection to the administrative law judge (ALJ) overseeing the SEC hearing.
The SEC first charged Mr. Lucia in 2012. Rather than bring its case in federal court or before the Commission itself, SEC chose to try him before an ALJ who was not constitutionally appointed. Since then, Mr. Lucia has endured six years of protracted litigation taking his case all the way to the U.S. Supreme Court—and winning—on the argument that the ALJ was improperly appointed. Instead of retrying the Lucia case before the Commission itself, the SEC is proceeding in front of another constitutionally defective ALJ—even though the U.S. Solicitor General told the Supreme Court in Lucia v. SEC two years ago that the agency’s ALJs are improperly insulated from removal.
NCLA believes the district court erred in concluding it lacked jurisdiction to hear Mr. Lucia’s objections to the SEC’s unconstitutional hearing. As NCLA’s motion shows, the 2018 decision in Lucia held that SEC’s ALJs are “officers” of the United States, thereby changing the legal landscape. Under an earlier precedent called Free Enterprise Fund v. Public Co. Accounting Oversight Board, the Supreme Court made clear that officers of the U.S. may not be insulated from removal by multiple layers of tenure protection without running afoul of the clause in Article II of the Constitution that requires the President to “take Care that the Laws be faithfully executed.” The President cannot fulfill that obligation if he cannot remove ALJs who are failing to discharge their duties adequately.
NCLA is taking the SEC to task for needlessly prolonging Mr. Lucia’s case with a pointless SEC hearing that is destined to be vacated. NCLA recently obtained an injunction from the Fifth Circuit for client Michelle Cochran, who similarly faced the prospect of enduring a second unconstitutional SEC proceeding.
“Ray Lucia has already been put through six years and five layers of appeal all the way to the Supreme Court to vindicate his right to be tried before a lawful judge. Despite its own admission that SEC ALJs still enjoy excessive, unconstitutional layers of tenure protection, the SEC is repeating that fiasco by, incredibly, insisting on re-trying Ray before another constitutionally defective ALJ. This isn’t exhaustion of remedies—it’s annihilation by administrative process.” —Peggy Little, Senior Litigation Counsel
“Ray Lucia has been put through the ringer and then some. The Ninth Circuit should allow the constitutional questions to be resolved now rather than subject Ray to yet another constitutionally defective SEC proceeding.” —Mark Chenoweth, Executive Director & General Counsel
ABOUT NCLA
NCLA is a nonprofit civil rights organization founded by legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights. For more information visit us online: NCLAlegal.org
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November 29, 2018 | NCLA Files Suit Over Unconstitutional SEC Appointees
WASHINGTON, DC, Nov. 29, 2018 — The New Civil Liberties Alliance, a nonprofit civil-rights organization and public-interest law firm, has filed a complaint seeking declarative and injunctive relief against the U.S. Securities and Exchange Commission in the U.S. District Court for the Southern District of California. NCLA represents Ray Lucia(pronounced “loo-chee-aa”) and his former company. The suit seeks to prevent these Plaintiffs from being compelled to submit—yet again—to a proceeding before an unconstitutional Administrative Law Judge (ALJ) at the SEC. NCLA is also seeking a stay in that proceeding today from the ALJ.
Mr. Lucia suffered irreparable professional, reputational and financial harm from the first unconstitutional proceeding. He should not have to endure another years-long, constitutionally flawed ALJ proceeding before getting heard—and vindicated—on his constitutional objections.
“There is a human toll that is rarely considered in cases like this. Even though the SEC’s prior decision has been set aside, Ray Lucia Sr.’s name and reputation are still tainted. Haling a citizen before an unlawful ALJ once is a grave breach of his constitutional rights. Doing it twice is unthinkable,” said Peggy Little, NCLA Senior Litigation Counsel.
The SEC charged Mr. Lucia in 2012. Since then, he’s endured six years of protracted litigation taking his case all the way to the U.S. Supreme Court -and winning- on the argument that the first ALJ he appeared before was improperly appointed. Rather than retrying the Lucia case before the Commission itself, the SEC is proceeding in front of another constitutionally defective ALJ. This time, the problem is that multiple layers of removal protection violate the Constitution’s requirement that the President be able to remove all officers of the United States.
The Solicitor General’s briefing to the Supreme Court in Lucia v. SEC flagged the President’s inability to remove ALJs as constitutionally dubious and asked the Court to decide the issue then, which it declined to do (awaiting further input from lower courts). Despite this glaring constitutional problem, SEC persists in ignoring its due process obligation to bring enforcement actions in a lawful forum.
“The SEC could have brought its original enforcement proceeding in federal district court. Instead, it chose to bring the case before an unconstitutionally appointed in-house judge. And now it is violating Article II of the Constitution again. The process has become the punishment for Ray. Enough is enough,” said Mark Chenoweth, Executive Director and General Counsel of NCLA.
About NCLA
NCLA is a nonprofit civil rights organization founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the administrative state. NCLA’s pro bono public-interest litigation and other advocacy strive to tame the unchecked power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights. For more information visit us online: NCLAlegal.org
Media Inquiries: Please contact Judy Pino, 202-869-5218 or email Judy.Pino@NCLA.legal
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