The SEC Plays Defense in Court

Pending SEC Cases

Lawyers for the SEC will be busy this fall defending the agency in several federal appeals courts.

Of particular note is a Fourth Circuit case, Bennett v. SEC, in which the SEC will defend its in-house tribunals for a fourth time before a federal appeals court.  Although there are a number of lawsuits claiming the agency's in-house forum doesn't pass constitutional muster, only the D.C. Circuit has directly addressed—and rejected—the contention.  A contrary Fourth Circuit ruling would create a circuit split that the Supreme Court may need to resolve.

In the Bennett case, investment adviser Dawn Bennett was sued in the commission's in-house forum for allegedly overstating her firm's assets under management. She fired back with a federal court lawsuit claiming that the way the agency's administrative law judges are hired violates the Appointments Clause.

The district court denied Bennett's bid to halt the administrative case pending resolution of the constitutional question, and the SEC is asking the Fourth Circuit to uphold the decision.  Oral arguments are scheduled for Oct. 28.

The Second, Seventh and Eleventh Circuits have previously ruled that the constitutional issue can't be resolved until the administrative case has concluded.

Federal Appeals by the Numbers

The D.C., Second, Ninth and Eleventh Circuits have the most pending appeals involving the SEC. As of Sept. 6, the Ninth Circuit surpassed all the other circuits with 30 pending appeals—50-plus percent more than the other top circuits. The D.C. Circuit had 13 pending SEC appeals, the Eleventh Circuit had 12 and the Second Circuit had 11.  The First Circuit is the only federal appeals court that does not currently have any pending cases in which the SEC is a party.

SEC Most Appealed Topics

The most commonly appealed issues involve disciplinary sanctions, denial of whistle-blower awards, and receivership disputes. As of Sept. 6, there were 36 active appeals involving sanctions, 13 involving receivership disputes and five involving the refusal to grant a whistle-blower award.

Read more about the major federal appeals cases in this story.