New Counterattack on SEC's Home Court Advantage
In their White-Collar Crime column, Robert J. Anello and Richard F. Albert write that defendants' efforts to enlist the federal courts to resist SEC administrative proceedings have had difficulty overcoming procedural hurdles requiring them to exhaust avenues of review within the agency before any federal court review. A new line of counterattack seeks to avoid those procedural hurdles with a facial challenge to the constitutionality of the SEC's administrative mechanism.
April 06, 2015 at 09:52 PM
12 minute read
In the wake of the 2010 Dodd-Frank Act's broadening of the reach of SEC administrative enforcement proceedings, the agency undertook a major shift toward pursuing such proceedings instead of federal district court actions, its historically preferred enforcement mechanism.1 Administrative proceedings, which are heard by judges employed by the Securities and Exchange Commission, are widely perceived to favor the agency. Indeed, recent data on the results of such proceedings reveal that the SEC has enjoyed a lopsided record of success, compared to its far more modest record in federal court trials.2
Not surprisingly, defendants have sought to enlist the federal courts to resist SEC administrative proceedings. Such efforts have had difficulty overcoming procedural hurdles requiring that a defendant await the outcome of the administrative proceeding and exhaust avenues of review within the agency before any federal court review.
A new line of counterattack being pursued by former Standard & Poor's Rating Services manager Barbara Duka in a case pending before Southern District of New York Judge Richard M. Berman seeks to avoid those procedural hurdles. Duka asserts a facial challenge to the constitutionality of the SEC's administrative mechanism. Her claim is premised on recent Supreme Court decisions holding that the Appointments Clause of Article II of the Constitution requires that agency officials exercising significant discretion—such as SEC administrative law judges—must be subject to the direct authority of the president. Duka's suit is an ingenious effort to address the vexing problem of perceived unfairness to defendants.
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