A federal appeals court ruling could nullify hundreds of decisions made by administrative law judges in securities cases from Colorado and five other states.

The five judges who preside over administrative hearings for the U.S. Securities and Exchange Commission on cases involving tens of millions dollars in fines improperly hold their positions, the 10th U.S. Circuit Court of Appeals said in a decision released Tuesday.

The 2-1 ruling by the Denver-based appeals court not only dissolves the $1.2 million fine an administrative law judge levied in 2013 against David Bandimere, one of the founders of the eponymous racetrack in Morrison, but potentially throws other decisions the judges have made into question.

“The decision of any SEC (administrative law judge) is subject to being vacated,” said Martin Berliner, a securities attorney in Denver. “The outcome is welcome and, in my opinion, long overdue.”

The appeals court said in a 37-page opinion that Administrative Law Judge Cameron Elliot, who decided Bandimere’s case, and the SEC commissioners concurred, should be appointed to the job like many other ALJs in other federal agencies. Instead, Elliot and his four judicial colleagues were hired through a civil service process by the federal personnel office that violates the Appointments Clause to the U.S. Constitution.

“This is the first time in 36 years the 10th Circuit has vacated an administrative decision by the SEC, and that was the only time that happened,” said David Zisser, Bandimere’s attorney who successfully argued the case. “There was a lot we thought was wrong with SEC’s decision.”

Bandimere was sanctioned and fined for allegedly assisting two now-convicted fraudsters — Richard Dalton of Golden and Larry Michael Parrish of Maryland — extend a $20 million Ponzi scheme to about 200 people over 13 states. Bandimere said he was pulled in by the men’s charm and believability.

At issue is whether the ALJs are federal employees rather than officers requiring appointment by the president, a court of law or the head of a federal agency, in this case the SEC commissioners. The appeals court relied heavily on a 1991 U.S. Supreme Court decision that said administrative judges used by the U.S. Department of Revenue in tax cases were “inferior officers” requiring appointment.

An inferior officer is one who sits below the higher-ranking officials such as Supreme Court justices and other federal judges appointed by the president. ALJs fall into that definition because of their far-reaching authorities to decide cases, even if those decisions are not binding, such as at the SEC.

However, the appeals court found that 90 percent of the ALJ decisions were simply adopted by the SEC.

“An SEC ALJ’s authority to issue an initial decision is significant because, even if reviewed (by the SEC), the ALJ plays a significant role as detailed above in conducting proceedings and developing the record leading to the decision, and the decision publicly states whether respondents have violated securities laws and imposes penalties for violations,” Appellate Court Judge Scott Matheson Jr. wrote in the majority opinion.

The decision runs contrary to one made in August 2016 at the U.S. Court of Appeals for the D.C. Circuit in which the judges ruled 3-0 that the SEC judges were employees who did not need to be appointed, in part agreeing with the SEC’s argument that ALJ decisions are not final.

Critics have long argued that the SEC conveniently pushes civil cases into its own administrative courts rather than federal circuit courts in part to avoid judicial criticisms of how they prosecute cases, but also to ensure favorable outcomes. In 2015, for example, the SEC brought more than 90 percent of its cases against public companies before its ALJs rather than federal courts.

“I have for many years complained that the entire ALJ mechanism deprives the (defendant) of due process,” Berliner said.

Part of the criticism has been about the speed with which ALJ cases move, often at the expense of fairness to the defendants, who are called respondents because the cases are not in federal court.

In a 16-page dissent, Appeals Court Senior Judge Monroe McKay lamented that the decision could let otherwise guilty respondents free.

“I began this dissent by expressing my fears of the probable consequences of today’s decision,” McKay wrote. “It does more than allow malefactors who have abused the financial system to escape responsibility. … Its holding is quite sweeping.”

McKay pointed out that there are 1,537 ALJs who work for the Social Security Administration and are deemed civil service employees hired much like the SEC’s ALJs.

“Today’s decision risks throwing much into confusion,” McKay wrote.

The government has 45 days in which to ask for a review by all 19 judges of the 10th Circuit, known as an en banc review. A similar appeal is underway in the D.C. Circuit case.

The Bandimere ruling applies only to SEC cases involving respondents who live in Colorado, Utah, Wyoming, Kansas, Oklahoma, and New Mexico. Zisser said it’s probable the matter will have to end up with the Supreme Court, which often reviews matters when the circuits are split.

“If someone from Colorado or Utah, for example, is in an SEC administrative proceeding, unless the ALJ gets appointed properly, that person knows that unless something happens to change this decision, he should have a get out of jail free card down the road,” Zisser said.

Bandimere has not paid the fine the SEC assessed, he said.

An SEC spokeswoman said the agency was reviewing the decision and offered no additional comment.