Patriarch Partners and CEO Lynn Tilton lost their bid to have a U.S. District Court judge stop an SEC administrative proceeding against them, but are appealing the decision.
Patriarch's lawsuit argued the agency's administrative process violates the Constitution because administrative law judges hearing the cases are not subject to removal. On Tuesday, U.S. District Judge Ronnie Abrams in New York dismissed the case, ruling the court does not have “the power — or jurisdiction” to halt proceedings at the Securities and Exchange Commission until Patriarch follows an established administrative review process. On the constitutional issue, Ms. Abrams said the court lacked subject matter jurisdiction.
After a five-year investigation that began in late 2009, SEC officials charged Patriarch on April 1 with improper asset valuation and performance disclosure with three collateralized loan obligation funds. The SEC order called for an initial decision within 300 days. Patriarch wanted the court to stop the process “to prevent suffering irreparable reputational and financial harm,” and to order a jury trial, its complaint said.
(More: Lynn Tilton, the "Wonder Woman of Wall Street," sues the government after it sues her)
On July 1, Patriarch filed notice it would appeal the District Court decision to the 2nd U.S. Circuit Court of Appeals in New York. “We are disappointed with Judge Abrams' decision finding that she lacked jurisdiction to hear our serious constitutional claims,” a spokesman said in an e-mail. “Judge Abrams' decision departs from recent decisions by other federal judges and, accordingly, we intend to seek expedited appellate review.”
ONE OF SEVERAL SUCH CASES
Ms. Abrams noted the case “is one of several recent cases attacking the SEC's decision to bring an ever increasing number of enforcement actions within its own administrative scheme, rather than in federal court.”
One of those cases was filed by Gray Financial Group in U.S. District Court in Atlanta. On June 30, the SEC issued cease-and-desist proceedings against the firm, and scheduled an administrative hearing for October. On May 21, the SEC charged Gray Financial Group with allegedly selling unsuitable investments to the $1.3 billion Atlanta General Employees' Pension Fund and pension funds for the city's firefighters and police officers, as well as the MARTA/ATU Local 732 Employees Retirement Plan.
Hazel Bradford is a reporter at sister publication Pensions & Investments.
