SEC rejects appeal by Dawn Bennett

The commission's March 30 opinion clears the way for Ms. Bennett to move forward with her federal court claims that the agency's in-house forum is unconstitutional

Apr 4, 2017 @ 1:37 pm

By Bloomberg News

Former investment adviser Dawn Bennett lost her appeal of an initial decision by the Securities and Exchange Commission that she must pay nearly $4 million for inflating assets and exaggerating investment returns in radio advertisements for her firm.

The commission's March 30 opinion clears the way for Ms. Bennett to move forward with her federal court claims that the agency's in-house forum is unconstitutional.

The federal appeals courts are divided on the constitutional question. The U.S. Court of Appeals for the Tenth Circuit concluded in a case against Colorado businessman David Bandimere that the way the agency's administrative law judges are hired violates the Appointments Clause. A D.C. Circuit panel, in a case against investment adviser Raymond J. Lucia, disagreed. However, the full D.C. Circuit has agreed to reconsider the issue.

In September 2015, the SEC sued Ms. Bennett in its in-house forum for allegedly overstating her firm's assets under management. She boycotted her hearing and the ALJ found her in default, barring Ms. Bennett from the industry and ordering her to pay disgorgement and civil penalties. She appealed the initial decision and also fired back with a federal court lawsuit challenging the hiring of ALJs.

The district court denied Ms. Bennett's bid to halt the administrative case pending resolution of the constitutional question and she appealed to the U.S. Court of Appeals for the Fourth Circuit.

In December, the Fourth Circuit, joining the Second, Seventh, Eleventh and D.C. Circuits, said that Ms. Bennett couldn't bring her constitutional challenge until the administrative proceedings against her had ended.

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