Patriarch Partners and CEO Lynn Tilton lost their bid to challenge the constitutionality of SEC administrative proceedings on Wednesday when the 2nd U.S. Circuit Court of Appeals in New York upheld a lower court’s dismissal of the case until the government completes its internal process.
After a five-year investigation that began in late 2009, officials at the Securities and Exchange Commission charged the firm in April 2015 with improper asset valuation and performance disclosure with three collateralized loan obligation funds. Patriarch Partners and Ms. Tilton immediately filed a lawsuit in U.S. District Court in New York challenging the SEC administrative proceedings process on constitutional grounds related to how SEC administrative judges are appointed and overseen.
A divided three-member appeals court agreed with the District Court that “Congress implicitly precluded federal jurisdiction over the appellants’ appointments clause claim while the commission’s proceeding remains pending,” the order said. In a dissenting opinion, Judge Christopher Droney said that the District Court does have subject matter jurisdiction to consider the constitutional challenge.