SEC wants Denver federal court to rethink ruling
Lawyers hope the panel, which includes Gorsuch, will rule on judges.
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.