Congress created and empowered the Securities and Exchange Commission to help enforce U.S. securities laws. 

The SEC’s unique structure and broad powers have long been controversial and subjected to constitutional challenges—including one currently being brought by Elon Musk

Only a few years ago, the U.S. Supreme Court held that the SEC’s mechanism for appointing its in-house administrative law judges—individuals who help resolve disputed matters—violated the Constitution’s appointments clause.

Those individuals functioned as officers of the United States, yet neither the president nor the SEC’s commissioners had appointed them as required by the Constitution. Instead, lower-level staff had done that job.

The Constitution’s appointments clause explicitly provides that the president “shall nominate, and by and with the Advice and Consent of the Senate, shall appoint” certain officials “and all other Officers of the United States.” And it provides that for inferior officers, “Congress may by Law vest” their appointment “in the President alone, in the Courts of Law, or in the Heads of Departments.”

If the president or an agency head didn’t appoint an officer, that’s unconstitutional.

But who qualifies as an officer—as opposed to merely an employee—of the federal government? 

That latter category comprises most who work for the federal government, and neither the president nor their agency head needs to appoint them.

The Supreme Court has set out some guidelines about how to tell if someone is an officer or an employee, but it’s not always clear. Still, if someone exercises significant governmental authority, that person likely qualifies as an officer.

While this distinction has a theoretical quality to it, it carries real-world consequences—just ask Musk.

This officer-versus-employee dispute will play out in a California federal courtroom as Musk challenges the authority of certain SEC staff to compel him to provide testimony related to his acquisition of X (formerly Twitter). 

Those staffers issued an administrative subpoena to him, but Musk argues they didn’t have the authority to do that. He says that because of their extensive authority, they’re officers—who have not been properly appointed according to the Constitution.

Moreover, Musk argues that because those SEC staffers are actually officers, their extensive removal protections also violate the Constitution’s take care clause. In other words, the president can’t “take Care that the Laws be faithfully executed” because he can’t remove these officials responsible for carrying those laws into execution.

Relatedly, the 5th U.S. Circuit Court of Appeals held not long ago that the removal protections for the SEC’s administrative law judges violate the Constitution. The SEC asked the U.S. Supreme Court to review and overturn that decision.

The court agreed to hear the case, but has yet to issue its decision. Musk, along with fellow billionaire Mark Cuban and several others, filed an amicus (friend of court) brief in that case, asking the Supreme Court to uphold the 5th Circuit’s decision.   

Musk says that because the outcome of that case could affect his case, the lower federal court hearing his case should stop his proceedings until the Supreme Court issues its decision.

A magistrate judge overseeing the case disagreed with Musk and ruled in favor of the SEC—before embarrassingly realizing she didn’t have any authority to hear the case. Now, it has been reassigned to a federal district court judge appointed by President Joe Biden.

Buried in a footnote in one of his filings, Musk suggests that he may take aim more broadly at the administrative state and ask the Supreme Court to overturn Humphrey’s Executor, a 1935 case in which, as Musk explains in his filing, the court held that “Congress may cabin the President’s removal authority in certain limited ways, including by imposing for-cause removal requirements with respect to the heads of certain multimember agencies.”

Musk notes that that decision “has been subject to emphatic and persuasive criticism for many decades,” and that while overruling that decision is “not necessary to invalidate” the SEC’s subpoena, he “reserves the right to ask the Supreme Court to overrule Humphrey’s Executor in this litigation.”

The bottom line is that while the outcome of this particular dispute between the SEC and Musk is unclear, Musk has raised many important issues concerning the structure of the SEC and the scope of its broad powers.

His arguments, if successful, could have broad application to dismantling the administrative state as we know it.

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