SEC Talks Up Its Second Circuit Win

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By Rob Tricchinelli

June 3 — The Securities and Exchange Commission is spreading the word of its favorable ruling in the Second Circuit case of the “diva of distressed” to other circuits as it continues its efforts to beat back challenges to its in-house courts.

In the same week that a divided U.S. Court of Appeals for the Second Circuit panel handed the SEC a win by sending Lynn Tilton's constitutional challenge back to an administrative proceeding, the agency reported that decision to the Fourth and Eleventh Circuits.

The Tilton opinion “addressed the same jurisdictional question presented here and affirmed the dismissal of a similar lawsuit,” the SEC said in nearlyidenticalletters filed in three cases in the two circuits.

The Second Circuit held that Tilton, the respondent in an SEC enforcement action, has to fully litigate her case in the agency's in-house court before she may challenge the constitutionality of that very forum in a federal-court complaint (106 SLD, 6/2/16).

Other Cases

In the U.S. Court of Appeals for the Fourth Circuit, the SEC faces a challenge from investment adviser Dawn Bennett, whom the agency accused of exaggerating returns in advertisements for her firm ( Bennett v. SEC, 4th Cir., No. 15-2584, supplemental authorities, 6/2/16 ).

Bennett protested the administrative proceeding against her by not showing up (30 SLD, 2/16/16). She argues the agency's administrative law judges are unconstitutionally hired.

The agency also sent the letters in two consolidated cases in the U.S. Court of Appeals for the Eleventh Circuit, part of its response to challenges made by Gray Financial Group Inc. and Charles Hill ( Gray Fin. Group, Inc. v. SEC, 11th Cir., No. 15-13738, supplemental authorities, 6/2/16 ; Hill v. SEC, 11th Cir., No. 15-12831, supplemental authorities, 6/2/16 )

The SEC has fought the constitutional claims in several venues. The the Seventh and D.C. Circuits, have held, like the Second Circuit, that the constitutional challenges can only be heard in federal court after the respondent receives an adverse ruling from both an SEC administrative law judge and the full commission (189 SLD 189, 9/30/15). While those cases turn on procedural timing, the agency also faces challenges from respondents whose penalties doled out by an ALJ have been affirmed by the commissioners, making the cases ripe for a constitutional attack.

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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