District Court Judge Richard Berman in New York has rejected the Securities and Exchange Commission’s request that a preliminary injunction on its use of administrative law judges in its proceedings be lifted. Berman said that the regulator has not shown “likely success” in its claim that the ALJ process is constitutional.
The judge also turned down the SEC’s contention that its administrative case against ex-Standard & Poor’s Rating Services (S & P) managing director Barbara Duka should proceed. Duka is challenging that securities case, arguing that SEC proceedings with administrative judges violate the Constitution because of how the justices are named and supervised.
Berman wants the SEC to fully probe charges of bias related to in-house judges. Critics have expressed concern that the in-house court presided over by Commission judges places the regulator at an unfair disadvantage over defendants. The SEC disagrees with these concerns, claiming that not only are judges impartial but also its court system is more efficient than that of the federal courts.
On Thursday, a three-judge panel of the United States Court of Appeals for the Second Circuit placed a stay on an SEC case against private equity financier Lynn Tilton. She is challenging the SEC’s decision to have her case presided over by an administrative law judge.
The SEC claims that Tilton deceived investors about collateralized loan obligation funds managed by her firm, as well as gave financing to distressed companies. Tilton is accused of bilking investors by hiding how poorly certain investments were doing. Her legal team say that the enforcement action against her is not constitutional because the appointment of the administrative law judges is in violation of the Constitution’s appointments clause.
“Deflategate” Judge Urges SEC to Investigate In-House Tribunal, Wall Street Journal, September 17, 2015
U.S. Appellate Court Puts Hold on Action Against Lynn Tilton, New York Times, September 18, 2015