Securities Regulation Daily Lucia's battle with the SEC ends with a $25,000 settlement
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Wednesday, June 17, 2020

Lucia's battle with the SEC ends with a $25,000 settlement

By Rodney F. Tonkovic, J.D.

Raymond Lucia agrees to bar orders and a civil penalty, ending a saga that reached all the way to the Supreme Court.

After a tumultuous eight-year fray including a victory before the Supreme Court, Raymond J. Lucia has settled with the SEC. To settle the charges that he misrepresented his company's investment strategy, Lucia agreed to associational and officer-director bars and to pay a $25,000 civil penalty (In the Matter of Raymond J. Lucia Companies, Inc. and Raymond J. Lucia, Sr.Release No. 34-89078, June 16, 2020).

The journey to settlement. The fight began in September 2012, when the Commission instituted cease and desist proceedings against Lucia for violations of the Investment Advisers Act. According to the Commission, Lucia had pitched investment advisory services to the public by touting a wealth management strategy called "Buckets of Money," which was claimed to produce superior results when compared to ("backtested") certain other retirement portfolio strategies in past sharp market declines. Lucia's presentation of the backtests, however, was materially misleading because it omitted material information about certain underlying assumptions and failed to disclose information about the methodology used.

An ALJ upheld the Commission's findings and Lucia appealed, arguing that the assigned ALJ was improperly appointed in violation of the U.S. Constitution’s Appointment Clause. Lucia's appeal was shot down by both the SEC and the D.C. Circuit Court of Appeals. Lucia's fortunes changed, however, in June 2018 when the Supreme Court ruled that the SEC’s administrative law judges are inferior officers of the U.S. government for purposes of the U.S. Constitution’s Appointments Clause. As a remedy, Lucia was then entitled to a new hearing by either a new ALJ or by the Commission itself.

The Commission, having earlier ratified the appointment of all of its ALJs, assigned a new ALJ to Lucia, whose motion to dismiss the proceedings was denied. In the meantime, Lucia had also filed a complaint in a California district court seeking, based on a different aspect of the Appointments Clause, to preliminarily enjoin the SEC from carrying out the administrative proceeding. The court found that the statutory review scheme in the securities laws precluded district court jurisdiction over Lucia's claims.

Sanctions. The Commission found that Lucia violated Advisers Act Sections 206(1), 206(2), and 206(4), and Rule 206(4)-1(a)(5) and that he caused his company's violations of the same provisions. Lucia is barred from association and from serving as an employee or officer or director of an investment adviser for three years. He also agreed to pay a civil money penalty in the amount of $25,000.

Under Lucia v. SEC, Lucia would have been entitled to a new hearing before another ALJ, but he voluntarily waived this option. Lucia similarly waived any challenges to any proceedings or orders issued before the ALJ, the Commission, or any court based on any defect in the appointment of any ALJ in this case. Finally, Lucia agreed to dismiss with prejudice his pending appeal to the Ninth Circuit of the final judgment entered by the Southern District of California.

The release is No. 34-89078.

Companies: Raymond J. Lucia Companies, Inc.

MainStory: TopStory Enforcement InvestmentAdvisers

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