A constitutional challenge to the Securities and Exchange Commission’s use of administrative proceedings in enforcement cases was rebuffed Monday by a three-judge panel in the 7th U.S. Circuit Court of Appeals in Chicago.
In the order, Judge David Hamilton ruled that Laurie Bebo, former CEO of Assisted Living Concepts Inc., could not raise the constitutional challenge before a final SEC decision is reached in her case.
“Every person hoping to enjoin an ongoing administrative proceeding could make this argument,” Mr. Hamilton wrote, affirming a lower court ruling. “We see no evidence from the statute's text, structure and purpose that Congress intended for plaintiffs like Bebo, who are already subject to ongoing administrative enforcement proceedings, to be able to stop those proceedings by challenging the constitutionality of the enabling legislation or the structural authority of the SEC.”
Earlier this month, two U.S. District Courts — in Atlanta and New York — allowed similar challenges to proceed. On Aug. 5, Gray Financial Group won a preliminary injunction against an SEC administrative proceeding when Judge Leigh Martin May ruled in U.S. District Court in Atlanta that the firm had proved “a substantial likelihood of success” pursuing its argument that the SEC’s administrative proceeding process violates the Constitution because of the way administrative judges are appointed and overseen. On Aug. 13, U.S. District Judge Richard Berman in New York issued a preliminary injunction against the SEC, saying former Standard & Poor's Ratings Services Director Barbara Duka “demonstrated irreparable harm along with a substantial likelihood of success” of her constitutional violation argument.
But in July 1, Patriarch Partners and CEO Lynn Tilton lost a similar bid when a U.S. District Court judge in New York dismissed the case, ruling the court does not have “the power — or jurisdiction” to halt proceedings until Patriarch follows an established administrative review process. On the constitutional issue, the court said it lacked subject matter jurisdiction.