May 23, 2017 / 9:37 PM / 2 months ago

UPDATE 1-U.S. SEC suspends some in-house court cases over hiring of judges

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By Sarah N. Lynch

WASHINGTON, May 23 (Reuters) - The U.S. Securities and Exchange Commission has suspended some of its pending in-house court cases, after a Denver-based federal appeals court found the agency had violated the Constitution in how it hired its administrative law judges.

In an order dated May 22, Wall Street's top regulator said it would suspend any cases in which a defendant will have an option to appeal a case before the Tenth Circuit Court of Appeals, which covers the states of Colorado, Kansas, New Mexico, Oklahoma, Utah and Wyoming.

The SEC's order comes after that same appeals court earlier this month declined to reconsider the ruling which found the SEC's hiring of its judges violated the Constitution's appointments clause.

That finding is at odds with the U.S. Court of Appeals for the District of Columbia Circuit, which previously sided with the SEC and found its hiring of the judges did not violate the law.

The Washington, D.C.-based appeals court is due to reconsider its ruling in oral arguments on Wednesday morning.

The SEC has faced mounting challenges to the constitutionality of how it appoints in-house judges in recent years.

Critics call the in-house court unfair to defendants, because there is limited discovery, the case is fast-tracked and some feel the SEC gets a home court advantage.

At issue is whether administrative law judges are employees or "inferior officers" who wield significant decision-making authority because of their powers to impose fines and bar people from the financial industry.

Under the appointments clause of the Constitution, officers must be appointed by the president, the head of an agency or a court.

The SEC's administrative judges, however, are not currently hired by the agency's presidentially-appointed commissioners.

The agency disagrees that its judges qualify as officers. It argues they are mere "employees" because their decisions are not final and still subject to SEC review.

As employees, they do not need to be hired by the SEC's chairman and they would not be covered by the appointments clause. (Reporting by Sarah N. Lynch; Editing by Lisa Shumaker and Tom Brown)

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