Houston hedge fund manager George Jarkesy Jr. on Tuesday lost his bid to stop an SEC administrative proceeding on constitutional grounds when a federal appeals court dismissed the case.
Ruling for a three-judge panel, U.S. Court of Appeals for the District of Columbia Circuit Judge Padmanabhan “Sri” Srinivasan agreed with the refusal of the District Court in Washington to stay SEC proceedings against Mr. Jarkesy, saying that he must finish that process first before seeking judicial review. “We hold that the securities laws provide an exclusive avenue for judicial review that (Mr.) Jarkesy may not bypass by filing suit in District Court,” Mr. Srinivasan wrote.
Mr. Srinivasan also commented on the “recent slew of cases” raising similar constitutional challenges to the SEC administrative law judge process, saying that “a system like the one (Mr.) Jarkesy envisions — where respondents 'jump the gun' by going directly to the District Court to develop their case — instead of seeing agency proceedings through to conclusion, has comparatively little merit.”
Several recent decisions in other jurisdictions have gone the other way and upheld staying SEC proceedings while the constitutional issue is addressed.
In 2013, the Securities and Exchange Commission charged Mr. Jarkesy and Patriot28 LLC with misleading investors about who made investment decisions.
Michael McCullough, Mr. Jarkesy’s lawyer, noted that the court’s decision preserves for later review all of Mr. Jarkesy’s constitutional claims, after a final SEC order is issued. “We intend to vigorously pursue these issues through the courts until these important constitutional questions are resolved. Agency administrative proceedings were never designed for the trial of complex cases where the potential penalties are virtually unlimited. We are confident that Mr. Jarkesy will be exonerated,” Mr. McCullough said in an e-mail.