SEC Courts Weather Constitutional Attack

     MANHATTAN (CN) — Upholding the constitutionality of the Dodd-Frank Wall Street Reform bill, the Second Circuit on Wednesday rejected a financier’s attack on the legitimacy of the SEC’s administrative court system.
     Patriarch Partners founder Lynn Tilton, whose brash business style and provocative attire inspired a memorable New York magazine profile, has been one of many executives up in arms about the SEC’s in-house prosecution regime.
     Created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC’s internal proceedings take place before administrative law judges rather than the judicial branch.
     Critics have accused the system of being a virtual Star Chamber that strips executives of due process: a claim the system’s supporters call hyperbolic and false.
     Federal courts can review the commission’s rulings, but several executives have argued that this safety valve could not bring back the time, money and damage to reputation from legal battles outside the judicial branch.
     On Wednesday, a Second Circuit panel ruled 2-1 that the SEC’s “imperfect” checks and balances pass constitutional muster.
     “Subsequent judicial review cannot restore those resources, but it can vacate the resulting judgment and remand for a new proceeding,” Judge Jonathan Sack wrote for the majority. “That post-proceeding relief, although imperfect, suffices to vindicate the litigant’s constitutional claim.”
     Sack noted that some federal judges across the country have disagreed. In other cases, federal judges in Georgia and New York have found that the process for appointing the commission’s administrative law judges violates the Appointments Clause of the Constitution: that only presidents, courts, or heads of departments can tap “inferior officers.”
     Rejecting that argument, Judge Jon Newman wrote in concurrence that these judges, at minimum, have “colorable jurisdiction.”
     “The Administrative Law Judge (‘ALJ’) that will be hearing the pending administrative proceeding against the appellants is not an interloper,” Newman wrote in a brief concurrence. “The ALJ is an official of the agency, facially clothed with authority to adjudicate the proceeding before her. Whether her appointment comports with the Appointments Clause is a fair question, but there is surely a plausible basis for arguing that her appointment is valid.
     “With colorable jurisdiction, the ALJ may adjudicate the administrative case, and the losing party will have its opportunity to seek review before the Commission and then petition for review of a final order in a Court of Appeals.”
     Judge Christopher Droney wrote in dissent that judicial review on appeal will be cold comfort to the SEC’s defendants.
     “Forcing the applicants to await a final commission order before they may assert their constitutional claim in a federal court means that by the time for judicial review comes, they will already have suffered the injury that they are attempting to prevent,” he wrote in a 25-page dissent.
     Patriarch Partners spokesman Richard White said the company was “extremely disappointed” by the decision.
     “As Judge Droney’s dissent argues, Ms. Tilton and Patriarch Partners should not be required to contest the SEC’s claims before an unconstitutional administrative law judge, but is entitled to a decision on the merits of that issue now,” White said in a statement. “Ms. Tilton, who brought the first of what are now many Appointments Clause challenges, is reviewing her legal options following today’s decision. Regardless of the next procedural steps, the underlying claims brought by the SEC, following a 3 to 2 vote by the Commission, are utterly meritless.”
     The SEC declined to comment on the ruling.
     The April 10, 2011, profile of Tilton in New York magazine was as over the top as the magazine said Tilton was. For instance: “Her brand of femininity is so over-the-top, so cartoonish, it’s as if she were playing a part, the Wonder Woman of Wall Street. But this is pretty much how she sees herself: an Ayn Rand heroine in six-inch heels who has men stay the night, then eats them for breakfast. ‘I’ll be your girlfriend,’ she’s told clients, ‘but I won’t be your bitch.'”
     And, the magazine reported, when an Italian CEO failed to treat her with respect, telling her that Italians liked women in the kitchen and the bedroom, but not in the boardroom, Tilton bought his company a week later in a bankruptcy sale, then “grabbed him by the knot of his tie and, in a boardroom full of people, shoved him against the wall. ‘You’ve showed me no respect and no appreciation,’ she hissed. ‘Today I can give your company away. So when I say “Step right,” you step right. When I say “Step left,” you step left. Do you understand that dance?’ Then she stormed out.”
     The CEO confirmed the story, and said they get along great now.

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