SEC Forum Challenger Ducks Worst Outcome in Agency Decision

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By Rob Tricchinelli

A former Standard & Poor’s executive whose case was kicked back to the SEC faces only a $7,500 fine after an administrative law judge tossed the bulk of the agency’s claims that she fraudulently manipulated ratings of commercial mortgage-backed securities in order to drum up business ( In re Duka , S.E.C., Admin. Proc. File No. 3-16349, 8/29/17 ).

Barbara Duka was forced to litigate the Securities and Exchange Commission’s charges in-house after a federal court said she couldn’t challenge the constitutionality of the agency’s forum until the administrative case was resolved.

Duka was among a handful of unsuccessful challengers to the constitutionality of the SEC’s administrative forum, an issue that is far from resolved after panels of the Tenth and D.C. Circuits have reached conflicting conclusions. The case could pique the U.S. Supreme Court’s interest, once the full D.C. Circuit revisits the issue.

In Duka’s case, the agency claimed she violated antifraud provisions of federal law in her conduct relating to the rerating of the securities.

“Although it is clear that Duka sought to, and did, change S&P’s methodology, there is no evidence she did so for a commercial purpose or any reason other than the belief that the change was analytically justified,” ALJ James E. Grimes wrote in an initial decision dismissing most of the agency’s allegations. “After agreeing to do so, however, Duka negligently failed to ensure the change in methodology was disclosed in presale reports distributed to investors.”

The SEC declined to comment.

“ALJ Grimes’ decision completely rejects the SEC’s claim of fraud—a claim that was never supported and that should never have been brought,” Duka’s attorney, Guy Petrillo of Petrillo Klein & Boxer LLP in New York, told Bloomberg BNA. “Barbara always acted in the utmost good faith while employed by S&P.”

Petrillo declined to comment on whether Duka would continue her constitutional challenge to the forum.

To contact the reporter on this story: Rob Tricchinelli in Washington at

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

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