SEC wants Den­ver fed­eral court to re­think rul­ing

Lawyers hope the panel, which in­cludes Gor­such, will rule on judges.

The Denver Post - - NEWS - By David Migoya David Migoya: 303-954-1506, dmigoya@den­ver­ or @david­migoya

The fed­eral govern­ment has asked the en­tire bench of jus­tices at the 10th Cir­cuit Court of Ap­peals in Den­ver to re­de­cide an ear­lier rul­ing that, if left to stand, could nul­lify hun­dreds of de­ci­sions made in se­cu­ri­ties cases from Colorado and five other states.

Lawyers for the U.S. Depart­ment of Jus­tice and the Se­cu­ri­ties and Ex­change Com­mis­sion want the 19-judge panel — which in­cludes Supreme Court nom­i­nee Jus­tice Neil Gor­such — to de­ter­mine whether ad­min­is­tra­tive law judges (ALJs) at the SEC im­prop­erly hold their po­si­tions.

The court in De­cem­ber de­cided in a 2-1 opin­ion that the five judges who pre­side over ad­min­is­tra­tive hear­ings for the SEC should have been ap­pointed to their jobs in­stead of be­ing hired through a civil ser­vice process by the fed­eral per­son­nel of­fice, a vi­o­la­tion of the Ap­point­ments Clause to the U.S. Con­sti­tu­tion.

That de­ci­sion came in an ap­peal filed by David Bandimere, one of the founders of the epony­mous race­track in Mor­ri­son, who was sanc­tioned and fined for al­legedly as­sist­ing two now-con­victed fraud­sters in a $20 mil­lion Ponzi scheme.

“Re­gard­less of what may hap­pen pro­ce­du­rally, we be­lieve that the panel de­ci­sion was well-rea­soned and firmly grounded in rel­e­vant Supreme Court author­ity,” said David Zisser, Bandimere’s at­tor­ney who suc­cess­fully ar­gued the case. “We are cau­tiously op­ti­mistic that the out­come will not change.”

The rul­ing ap­plies only to SEC cases in­volv­ing re­spon­dents — they are only called de­fen­dants when charged in dis­trict court — who live in Colorado, Utah, Wy­oming, Kansas, Ok­la­homa and New Mex­ico.

At is­sue is whether the ALJs are fed­eral em­ploy­ees rather than of­fi­cers re­quir­ing ap­point­ment by the pres­i­dent, a court of law or the head of a fed­eral agency, in this case the SEC com­mis­sion­ers.

The court held that an ALJ’s author­ity to is­sue de­ci­sions is sig­nif­i­cant, even though SEC com­mis­sion­ers can ig­nore them and ren­der their own de­ci­sions – which does not hap­pen 90 per­cent of the time.

The U.S. Court of Ap­peals for the D.C. Cir­cuit in Au­gust 2016 came to wholly dif­fer­ent de­ci­sion, rul­ing 3-0 that the SEC judges were em­ploy­ees who did not need to be ap­pointed, in part be­cause the ALJ de­ci­sions are not fi­nal un­til the SEC com­mis­sion­ers say so.

Be­cause two cir­cuits are at odds, it’s likely the rul­ing — if un­changed by the full 10th Cir­cuit — could end up be­fore the U.S. Supreme Court.

In its re­quest for re­hear­ing, the govern­ment says the three-judge panel in Den­ver – all ap­peals are heard by only three jus­tices, though those de­ci­sions can be ap­pealed to the larger bar that over­sees the cir­cuit – got it wrong. Congress in­ten­tion­ally wanted to en­sure the po­lit­i­cal loy­al­ties com­mis­sion­ers have are kept apart from the ALJs when it cre­ated the sys­tem.

“Civil-ser­vice em­ploy­ees, hired on the ba­sis of merit and pro­tected from re­tal­i­a­tion for their de­ci­sions, as­sist agen­cies in per­form­ing their ad­ju­di­ca­tory func­tions un­der the law,” the govern­ment wrote in its re­quest for a full, or en banc, hear­ing. “But all de­ci­sion­mak­ing author­ity on ques­tions of both fact and law re­sides in the po­lit­i­cally ac­count­able agency head.”

Crit­ics have ar­gued that the SEC con­ve­niently pushes civil cases into its own ad­min­is­tra­tive courts rather than fed­eral cir­cuit courts in part to avoid ju­di­cial crit­i­cisms about how they pros­e­cute cases, as well as to en­sure fa­vor­able out­comes.

In 2015, for ex­am­ple, the SEC brought more than 90 per­cent of its cases against pub­lic com­pa­nies be­fore its ALJs rather than fed­eral courts.

At the root of the case is Bandimere, who said he was pulled into the scheme by smooth-talk­ing Richard Dalton of Golden and Larry Michael Par­rish of Mary­land. The scam net­ted about 200 peo­ple in over 13 states.

Bandimere said it was the men’s charm and be­liev­abil­ity that sold him. Dalton was sen­tenced to 10 years in prison; Par­rish re­ceived a 9-year term.

Bandimere was fined $1.2 mil­lion in 2013, but that was dis­solved with the ap­pel­late court rul­ing.

“The de­ci­sion is cer­tainly im­por­tant enough, given the con­flict with the DC Cir­cuit … to jus­tify an en banc hear­ing,” said Martin Ber­liner, a se­cu­ri­ties at­tor­ney in Den­ver. “If the en banc re­quest is granted, the full panel will hear the case, though if I were a bet­ting man, I doubt the de­ci­sion would be re­versed.”

The next step would be to re­quest a hear­ing be­fore the U.S. Supreme Court, Ber­liner said.

“The wild card would be the po­si­tion of the Trump ad­min­is­tra­tion as to whether it would want to file such a pe­ti­tion,” he said.

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