Securities Law Daily provides daily coverage of developments in the regulation of federal, state, and international securities and futures trading, with objective coverage of the...
By Phyllis Diamond
March 28 — The U.S. Supreme Court declined March 28 to take up a federal appeals court ruling rejecting a former assisted living executive's challenge to the constitutionality of the Securities and Exchange Commission's in-house forum.
The appeals court didn't directly address the constitutional issue, holding only that respondent Laurie Bebo couldn't pursue her constitutional claims until the administrative case against her concluded.
Although the high court's move ends hope for the near-term resolution of the question, the justices will have the opportunity to revisit the topic, given the dozens of similar lawsuits against the agency.
A petition currently is pending by Gordon Brent Pierce, accused by the commission of selling unregistered stock. He claims that as “inferior officers” under the constitution's Appointments Clause, the SEC's administrative law judges aren't properly hired. The allegation is similar to several claims currently working their way through the federal courts.
The SEC didn't respond immediately to an e-mailed request for comment.
The SEC sued Bebo in late 2014, alleging that her company, Assisted Living Concepts Inc., lied in its disclosures about a lease for an assisted-living facility (233 SLD, 12/4/14). Bebo countered with a lawsuit against the agency, arguing that it violated her constitutional rights by suing her administratively rather than in federal district court (04 SLD, 1/7/15).
The district court dismissed Bebo's suit for lack of subject matter jurisdiction (43 SLD, 3/5/15) and the U.S. Court of Appeals for the Seventh Circuit affirmed (164 SLD, 8/25/15). It said Bebo couldn't bring a constitutional challenge until both the ALJ and the commission, on appeal, made a final decision in the administrative case.
Backed by Texas billionaire and NBA team owner Mark Cuban as amicus curiae (46 SLD, 3/9/16), Bebo asked the high court to review the Seventh Circuit's decision (26 SLD, 2/9/16). In the administrative case, an ALJ ordered Bebo to pay $4.2 million for making false statements in the company's public filings (193 SLD, 10/6/15). The SEC has agreed to review the ALJ's order (238 SLD, 12/11/15).
In other high court action, the justices turned back petitions by an asset management firm and a group of investment banks for review of federal appeals court rulings holding them liable for securities law violations (Koch v. SEC, U.S., No. 15-781, 3/28/16; RBS Sec. Inc. v. Fed. Deposit Ins. Corp., U.S., No. 15-783, 3/28/16).
In the asset management case, Donald Koch and his firm Koch Asset Management petitioned the justices to take up a D.C. Circuit ruling upholding the SEC's conclusion that Koch manipulated the market by marking the close in the stock of three small banks (135 SLD, 7/15/15; 247 SLD, 12/28/15). The appeals court also concluded that the SEC's imposition of sanctions under the 2010 Dodd-Frank Act for conduct that took place in 2009 was impermissibly retroactive, but the agency didn't seek review of that decision (197 SLD, 10/13/15)
In the second case, RBS Securities Inc., Deutsche Bank Securities Inc. and Goldman Sachs & Co. asked the high court to review a Fifth Circuit ruling that they made misrepresentations about mortgage loans packaged and sold as securities (155 SLD, 8/12/15)). The district court said the Federal Deposit Insurance Corporation waited too long to sue the firms under Texas securities law, but the Fifth Circuit didn't agree. It concluded that an extender statute preempted all limitations periods.
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