Court Bid Must Wait For SEC In-House Action, 2nd Cir. Says

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By Antoinette Gartrell

Dec. 2 — Investment advisory executive Wing Chau can’t challenge the constitutionality of the SEC’s in-house forum while the agency’s administrative case against him is ongoing, a federal appeals court said ( Chau v. SEC , 2d Cir., No. 15-00461, 12/2/16 ).

Chau’s constitutional claim can still receive “meaningful judicial review” after the Securities and Exchange Commission’s administrative proceeding runs its course, the U.S. Court of Appeals for the Second Circuit said Dec. 2.

The appeals court reached a similar conclusion in a now abandoned case against the agency by financier Lynn Tilton. In a summary order, the Second Circuit said that although Chau’s constitutional claim is different from Tilton’s, the Tilton analysis compels the same conclusion.

Lacked Authority

In this case, the SEC brought an administrative action against Chau and his firm Harding Advisory LLC alleging that they misrepresented a hedge fund’s role in the selection of assets to back a 2006 collateralized debt obligation. Chau sued the agency in the U.S. District Court for the Southern District of New York, claiming the administrative forum denied him due process.

The district court ruled that it didn’t have authority to hear the claim and Chau appealed to the Second Circuit. The agency moved to dismiss.

Judgment Affirmed

In siding with the SEC, the appeals court said Chau didn’t offer any good reason that his constitutional injury would be “irremediable” after the administrative proceeding concluded.

The court also said that resolution of the administrative case may obviate the need to address the constitutional challenge at all.

To contact the reporter on this story: Antoinette Gartrell in Washington at

To contact the editor responsible for this story: Phyllis Diamond at

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