Adviser accused of fraud boycotts SEC's in-house administrative trial

An investment adviser accused of fraud by the U.S. Securities and Exchange Commission has a new way to defend herself at an internal agency trial. She's boycotting the proceeding. Dawn Bennett failed to show up to the in-house court in Washington for the start of her trial Wednesday, her lawyer, Greg Morvillo, said. Bennett lost her appeal to halt the SEC case after she claimed the proceedings are biased. “We asked the SEC, out of fairness, to adjourn the administrative proceeding until the constitutional question is resolved by the courts,” Mr. Morvillo said in a statement. “They have refused.” The SEC is confronting a multi-pronged attack on its use of administrative law judges, to whom it directs hundreds of cases a year. The agency says its system, in use since the Depression, is fair, cheap and efficient. But critics, including former SEC lawyers and federal judges question whether defendants get a lawful hearing. The SEC filed an administrative proceeding against Ms. Bennett, founder of Chevy Chase, Maryland-based Bennett Group Financial Services, in September, claiming she greatly exaggerated assets under management and investment returns on a paid radio program. She denies wrongdoing. Ryan White, an SEC spokesman, declined to comment on the case. “I will not subject myself and Bennett Group Financial Services to an unconstitutional proceeding by the SEC,” Ms. Bennett said in a statement. “I know this has never been done before. But sometimes you have to stand up for what you believe in, even if there are personal consequences. I believe in the Constitution, so I won't attend their kangaroo court.” (Related read: Bill introduced to curb SEC's use of in-house judges) OTHER COURTS Federal courts elsewhere have been more sympathetic to challenges to the SEC's in-house court system. In one case, a federal judge in New York agreed to stop a proceeding against former Standard & Poor's executive Barbara Duka, a ruling the SEC is challenging on appeal. In another, a U.S. appeals court halted the in-house trial against Lynn Tilton, the so-called Diva of Distressed, while she challenged the constitutionality of the process. Ms. Duka, Ms. Tilton and others claim in-house judges are illegally chosen through the agency's hiring process rather than appointed by its commissioners, as the Constitution requires. Many federal agencies rely on similar administrative courts, so what happens at the SEC may have implications elsewhere. In Ms. Bennett's case, SEC administrative law judge James Grimes on Jan. 12 rejected her bid to halt the in-house trial while she appealed.