A federal appeals court on Wednesday sharply questioned the powers of the U.S. Securities and Exchange Commission’s in-house courts in a case that could transform how the Wall Street regulator carries out its enforcement authority, the Wall Street Journal reported today. The SEC tribunals are run by officers who have career appointments, such as U.S. district judges, but are classified as employees of the agency. The SEC’s administrative judges conduct trials and are expected to independently oversee hearings, although any punishments they impose must be confirmed by the agency’s commissioners to take effect. Judges on the U.S. Court of Appeals for the District of Columbia Circuit probed whether the SEC’s judges exercise enough power that, under the Constitution’s appointments clause, they should have been hired by the SEC’s commissioners. The challengers to the SEC’s system say that it is a fatal flaw that the judges were hired by a human resources office, violating the Constitution’s call to limit the power of government officials who don’t answer to elected officeholders. The SEC argues its system for hiring judges is legitimate because the judges’ decisions aren’t final without the commission’s involvement. But several judges on the appeals court on Wednesday said the standard is whether the SEC’s judges wield significant authority, such as assessing the credibility of witnesses and deciding what evidence to allow.
