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 covered by the appointments clause of the Constitution, which aims to keep such powers in check.
During the oral arguments, government lawyers were subjected to lengthy questioning from judges on the 10-member panel, as they sought clarity on what qualifies as an "inferior officer." A lawyer who argued forcefully on behalf of Raymond Lucia, a former radio talk show host who brought the appeal, was also peppered with questions.
The agency argues that administrative law judges are only employees because their decisions are not final and still subject to SEC review. But critics say they are inferior officers because they have the power to impose fines and bar people from the industry.
Currently, the SEC hires its in-house judges through a bureaucratic process and not by its presidentially-appointed commissioners.
Critics say inferior officers must be appointed by the president, the head of an agency or federal courts in order to pass Constitutional muster.
If the SEC loses the case, it is unclear what the impact would be on prior or pending cases in the in-house court.
Lucia, best known for his "Buckets of Money" investment strategy, was sued by the SEC for fraud in 2012.
SEC Administrative Law Judge Cameron Elliot found him liable the next year, barred him from the industry and ordered him to pay $300,000 - a finding later upheld in a 3-2 vote by the SEC's presidentially-appointed commissioners.
The cases are Raymond J. Lucia Companies, Inc v. SEC, U.S. Court of Appeals for the District of Columbia Circuit, 15-1345 and PHH Corporation v. CFPB, 15-1177.