The Securities and Exchange Commission enjoys its prestige because of its important task in regulating the securities markets, and because it is widely assumed that it acts fairly and lawfully in prosecuting and punishing insider traders.

But that venerable reputation has come under fire in recent years, and the SEC now faces a scandal.

When prosecuting its cases, the SEC can choose to avoid the courts of law and their due process by bringing its cases before its own in-house administrative law judges, or ALJs. This is bad enough on its own, but there is also reason to believe that the SEC’s indirect method of appointing its ALJs is unconstitutional. The Supreme Court will hear arguments on that question April 23, in the case Lucia v. Securities and Exchange Commission.

The SEC appoints its ALJs through the decision of a subordinate. Some justices may be tempted to uphold this indirect method of appointment on the assumption that, by creating a buffer between the commission and its ALJs, it preserves their independence. But the New Civil Liberties Alliance’s amicus brief filed in Lucia reveals a further twist in the SEC’s appointment process — a wrinkle that results in ALJs who are neither independent nor particularly expert.

Several years ago, commentators noticed that the SEC enjoyed considerably higher success rates when it brought its suits before ALJs rather than federal district court judges. Now it turns out that the impartiality problem is even worse than imagined.

The SEC may choose its ALJs from a list of three top candidates provided by the Office of Personnel Management — which, in theory, leaves the agency little room to select ALJs who would favor it. But the SEC has circumvented this appointment process by taking the majority of its ALJs laterally from the vast pool of existing ALJs at other agencies.

By drawing ALJs from places like the Social Security Administration, the SEC finds ALJs who have no previous expertise in securities law and who have mostly adjudicated the distribution of benefits. They are therefore unaccustomed to protecting defendants in proceedings that can deprive them of their livelihood. For example, Cameron Elliot — the SEC ALJ who presided in Lucia — came from the Social Security Administration. Several years ago, he was reported to have claimed that “he had never ruled against the SEC’s enforcement division,” and that record has not improved much since.

Apparently recognizing the potential for scandal, the SEC has tried to avoid revealing the details behind its selection process. In one recent case, when the commission ordered the Enforcement Division to file an affidavit explaining how Elliot was selected and appointed, the Enforcement Division cryptically said that he was “not hired through a process involving the approval of individual members of the Commission.” It also filed an unsworn “Notice of Filing” that described the conventional selection of ALJs from among the three top candidates put forward by OPM, adding: “It is the Division’s understanding that the above process was employed as to ALJ Elliot.” How convenient that this was not sworn under oath, for Elliot himself has said that he was not appointed via the OPM process.

The SEC’s selection process for most of its ALJs — a process that allows it to handpick candidates favorable to the SEC — is scandalous. And the SEC’s lack of candor about it, including in court filings, smacks of a cover-up.

Even if the SEC’s ALJs personally make every attempt to be fair-minded, they are subject to layers of institutional constraints that prevent them from exercising independent judgment. The ALJs are required to favor the government’s legal position on the constitutionality of statutes and on the lawfulness of SEC rules. They can be dismissed for failing to follow SEC rules and policy. And because the commission can prevent ALJ’s opinions from becoming final, they have incentives to conform their opinions to what they anticipate the commission wants. In short, far from being unbiased judges, the SEC ALJs are systematically biased.

Indirect appointment leaves ample room for bias in the selection of ALJs, whether at the SEC or any other federal agency. For the Supreme Court, this means that the SEC’s appointment method has no value in preserving the impartiality of its ALJs. There is consequently no reason for the justices to strain the Constitution to approve the SEC’s indirect appointment method.

For the rest of us, there is an even broader lesson. The SEC’s in-house judging is institutionally biased in more ways than we knew.

Philip Hamburger, a professor at Columbia Law School, is president of the New Civil Liberties Alliance.