A federal appeals court last week threw into disarray a pillar of the SEC’s enforcement strategy, saying it would take a new look at the legitimacy of the agency’s in-house court system.

The U.S. Court of Appeals for the District of Columbia Circuit said it would reconsider an appeal that argues the SEC’s use of administrative courts is unconstitutional. The argument was made by Raymond Lucia, a California financial adviser and radio personality who was accused of misleading investors about a strategy he called “Buckets of Money.” The appeals court’s decision wipes out what had been an SEC victory in the case and creates more uncertainty about the outcome of other lawsuits over the agency’s in-house courts.

• In August, a panel of judges on the D.C. Circuit dismissed Mr. Lucia’s appeal, which argued the process for hiring administrative-law judges violates a clause of the U.S. Constitution that governs presidential and other appointments.
• In a separate ruling in December, an appeals court in Denver ruled the in-house courts don’t meet constitutional requirements.

NEW HEARING SET FOR MAY 24.    The D.C. Circuit said Thursday it would reconsider Mr. Lucia’s case with a larger roster of judges participating in the review. Mr. Lucia is fighting a 2013 decision by an SEC administrative judge that found he committed fraud and permanently barred him from working as a financial adviser. The SEC first sued Mr. Lucia in 2012, saying his claims that he extensively back-tested his strategy were false. Mr. Lucia promoted “Buckets of Money” as a way for retirees to earn steady income while using riskier investments to grow their nest eggs.

Mr. Lucia argued the SEC overreached by labeling his conduct as fraud. He also claimed the punishment imposed by the SEC judge - a lifetime ban from the industry - was excessive.

FIGHT OVER CONSTITUTIONALITY.    The SEC has been fighting a flurry of legal challenges to its administrative courts, which have seen more action since 2010, when Congress expanded the agency’s discretion to bring claims through the system. The challengers argue the judges should have been appointed by the 5 members of the commission, who are appointed by the U.S. president, but were instead hired through a personnel office. That violates the Constitution’s appointments clause, they say.

But it isn’t clear the agency’s new leadership wants to do that. Republicans, who will control the SEC under the Trump administration, have been critical of the expanded use of in-house courts. Michael Piwowar, the agency’s acting chairman, warned in a 2014 speech that SEC enforcement attorneys can use the in-house courts to “create new interpretations of the lawFederas or regulations or impose new regulatory requirements.”

Fixing the way administrative judges are appointed might only make it easier to pursue more cases in its administrative courts.