‘Big Short’ Villain’s Due-Process Is Just Dandy

     MANHATTAN (CN) – Roasted in print as the architect of a financial “ship of doom,” money manager Wing Chau is not a sympathetic poster child for government overreach.
     “The Big Short: Inside the Doomsday Machine,” No. 1 for six weeks on the New York Times bestseller list, blamed “Chau and people like him” for sinking the global economy
     The 2nd Circuit ruled last month that the book by investigative reporter Michael Lewis contained nothing defamatory against Chau.
     With Chau never having faced criminal or civil action for the alleged acts that the book describes, his lawyers cried foul after the Securities and Exchange Commission filed an administrative action against Chau and his firm, Harding Advisory LLC.
     U.S. District Judge Lewis Kaplan refused to halt those proceedings on Thursday, in a 36-page opinion finding no due-process violation.
     “The Big Short” reported that Chau controlled $15 billion invested in “nothing but CDOs [collateralized debt obligations] backed by the triple-B tranche of a mortgage bond,” described in the book as “the equivalent of three levels of dog shit lower than the original bonds.”
     The administrative and cease-and-desist hearing that the SEC opened in October 2013 alleged Chau and his firm committed fraud through material representations about their interests in a CDO called Octans ICDO Ltd.
     The hearing could lead to a $650,000 fine for Chau and $3.25 million fine for Harding, Law360 reported.
     Chau says the case file that the SEC dropped on his team two months after the probe began was a whopping 22 million pages long, “larger than the entire printed Library of Congress.”
     The administrative law judge, who may be weeks away from reaching a January 2015 decision, already rejected a request for an adjournment that would give Chau’s lawyers six months to sift through the mountain of paper.
     But Chau and his firm “insist that they should not have to wait” for the process to end, the judge added.
     “They believe that the unfairness in their proceeding is manifest now,” the opinion states. “Perhaps. Perhaps not. Indeed, if plaintiffs’ arguments are as strong as they insist, then vindication will be theirs should the time come.”
     Administrative decisions can be appealed within the SEC, and are then reviewable by the 2nd Circuit.
     In a “bid to evoke sympathy,” Chau claimed that he did not have the “unlimited resources” of “large corporate defendants” to fight such costly legal battles.
     But Kaplan urged him to keep things in perspective.
     “Criminal defendants face trial every day in this and other courthouses – often with poorly paid, court-appointed counsel because they cannot afford any private representation, let alone the same representation as ‘large corporate defendants,'” the opinion states. “Those defendants, many of whom face peril far greater than the administrative penalties facing plaintiffs, cannot interrupt their prosecutions and trials to appeal an allegedly inadequate amount of time to prepare for an adverse discovery ruling.”
     Kaplan rejected Chau’s motion for a preliminary injunction.
     Chau’s lawyers did not immediately respond to a request for comment.The SEC meanwhile said it is “pleased with the decision.”

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