SEC de­ci­sions in dan­ger

Rul­ing by ap­peals court could nul­lify judges’ ac­tions in Colo., 5 other states

The Denver Post - - BUSINESS - By David Migoya

A fed­eral ap­peals court rul­ing could nul­lify hun­dreds of de­ci­sions made by ad­min­is­tra­tive law judges in se­cu­ri­ties cases from Colorado and five other states.

The five judges who pre­side over ad­min­is­tra­tive hear­ings for the U.S. Se­cu­ri­ties and Ex­change Com­mis­sion on cases in­volv­ing tens of mil­lions dol­lars in fines im­prop­erly hold their po­si­tions, the 10th U.S. Cir­cuit Court of Ap­peals said in a de­ci­sion re­leased Tues­day.

The 2-1 rul­ing by the Den­ver­based ap­peals court not only dis­solves the $1.2 mil­lion fine an ad­min­is­tra­tive law judge levied in 2013 against David Bandimere, one of the founders of the epony­mous race­track in Mor­ri­son, but po­ten­tially throws into ques­tion other de­ci­sions the judges have made.

“The de­ci­sion of any SEC (ad­min­is­tra­tive law judge) is sub­ject to be­ing va­cated,” said Martin Ber­liner, a se­cu­ri­ties at­tor­ney in Den­ver. “The out­come is wel­come and, in my opin­ion, long over­due.”

The ap­peals court said in a 37page opin­ion that Ad­min­is­tra­tive Law Judge Cameron El­liot, who de­cided Bandimere’s case, and the SEC com­mis­sion­ers con­curred, should be ap­pointed to the job like many other ad­min­is­tra­tive law judges, or ALJs, in other fed­eral agen­cies. In­stead, El­liot and his four judicial col­leagues were hired through a civil ser­vice process by the fed­eral per­son­nel of­fice that vi­o­lates the Ap­point­ments Clause to the U.S. Con­sti­tu­tion.

“This is the first time in 36 years the 10th Cir­cuit has va­cated an ad­min­is­tra­tive de­ci­sion by the SEC, and that was the only time that hap­pened,” said David Zisser, Bandimere’s at­tor­ney who suc­cess­fully ar­gued the case. “There was a lot we thought was wrong with SEC’s de­ci­sion.”

Bandimere was sanc­tioned and fined for al­legedly as­sist­ing two

now-con­victed fraud­sters — Richard Dal­ton of Golden and Larry Michael Par­rish of Mary­land — ex­tend a $20 mil­lion Ponzi scheme to about 200 peo­ple over 13 states. Bandimere said he was pulled in by the men’s charm and be­liev­abil­ity.

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 ap­peals court re­lied heav­ily on a 1991 U.S. Supreme Court de­ci­sion that said ad­min­is­tra­tive judges used by the U.S. De­part­ment of Rev­enue in tax cases were “in­fe­rior of­fi­cers” re­quir­ing ap­point­ment.

An in­fe­rior of­fi­cer is one who sits below the high­er­rank­ing of­fi­cials such as Supreme Court jus­tices and other fed­eral judges ap­pointed by the pres­i­dent. ALJs fall into that def­i­ni­tion be­cause of their far-reach­ing au­thor­i­ties to de­cide cases, even if those de­ci­sions are not bind­ing, such as at the SEC.

How­ever, the ap­peals court found that 90 per­cent of the ALJ de­ci­sions were sim­ply adopted by the SEC.

“An SEC ALJ’s au­thor­ity to is­sue an ini­tial de­ci­sion is sig­nif­i­cant be­cause, even if re­viewed (by the SEC), the ALJ plays a sig­nif­i­cant role as de­tailed above in con­duct­ing pro­ceed­ings and de­vel­op­ing the record lead­ing to the de­ci­sion, and the de­ci­sion pub­licly states whether re­spon­dents have vi­o­lated se­cu­ri­ties laws and im­poses penal­ties for vi­o­la­tions,” Ap­pel­late Court Judge Scott Mathe­son Jr. wrote in the ma­jor­ity opin­ion.

The de­ci­sion runs con­trary to one made in Au­gust 2016 at the U.S. Court of Ap­peals for the D.C. Cir­cuit in which the judges ruled 3-0 that the SEC judges were em­ploy­ees who did not need to be ap­pointed, in part agree­ing with the SEC’s ar­gu­ment that ALJ de­ci­sions are not fi­nal.

Crit­ics have long ar­gued that the SEC con­ve­niently pushes civil cases into its own ad­min­is­tra­tive courts rather than fed­eral cir­cuit courts in part to avoid judicial crit­i­cisms of how they pros­e­cute cases, but also 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.

“I have for many years com­plained that the en­tire ALJ mech­a­nism de­prives the (de­fen­dant) of due process,” Ber­liner said.

Part of the crit­i­cism has been about the speed with which ALJ cases move, of­ten at the ex­pense of fair­ness to the de­fen­dants, who are called re­spon­dents be­cause the cases are not in fed­eral court.

In a 16-page dis­sent, Ap­peals Court Se­nior Judge Mon­roe McKay lamented that the de­ci­sion could let oth­er­wise guilty re­spon­dents free.

“I be­gan this dis­sent by ex­press­ing my fears of the prob­a­ble con­se­quences of to­day’s de­ci­sion,” McKay wrote. “It does more than al­low male­fac­tors who have abused the fi­nan­cial sys­tem to es­cape re­spon­si­bil­ity. … Its hold­ing is quite sweep­ing.”

McKay pointed out that there are 1,537 ALJs who work for the So­cial Se­cu­rity Ad­min­is­tra­tion and are deemed civil ser­vice em­ploy­ees hired much like the SEC’s ALJs.

“To­day’s de­ci­sion risks throw­ing much into con­fu­sion,” McKay wrote.

The govern­ment has 45 days in which to ask for a re­view by all 19 judges of the 10th Cir­cuit, known as an en banc re­view. A sim­i­lar ap­peal is un­der­way in the D.C. Cir­cuit case.

The Bandimere rul­ing ap­plies only to SEC cases in­volv­ing re­spon­dents who live in Colorado, Utah, Wy­oming, Kansas, Ok­la­homa, and New Mex­ico. Zisser said it’s prob­a­ble the mat­ter will have to end up with the Supreme Court, which of­ten re­views mat­ters when the cir­cuits are split.

“If some­one from Colorado or Utah, for ex­am­ple, is in an SEC ad­min­is­tra­tive pro­ceed­ing, un­less the ALJ gets ap­pointed prop­erly, that per­son knows that un­less some­thing hap­pens to change this de­ci­sion, he should have a get out of jail free card down the road,” Zisser said.

Bandimere has not paid the fine the SEC as­sessed, he said.

An SEC spokes­woman said the agency was re­view­ing the de­ci­sion and of­fered no ad­di­tional com­ment.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.