Search Our Blog

Major SEC Enforcement Action Shows The Twists And Turns In Challenging The Use Of Administrative Proceedings

By Dennis A. Stubblefield, Esq. and Jeffrey T. Petersen, Esq.  of Shustak Reynolds & Partners, P.C. posted on Thursday, June 25, 2015.

Dennis A. Stubblefield

Dennis A. Stubblefield


In the past two months, an SEC administrative proceeding against a well-known financial figure in New York has demonstrated the legal twists and turns that have come into play with the SEC’s increased use of the administrative forum to enforce securities laws, as well as the interplay between the multiple challenges to this forum presently before the federal courts.

 The New York Post reported in early April (link below) that the purported “diva of distressed debt”, Lynn Tilton, had become one of the latest SEC respondents to challenge the Commission’s use of Administrative Proceedings in its enforcement activities.

 The SEC charged Tilton and her private-equity firm Patriarch Partners of defrauding investors by hiding the poor performance of its investments, helping the firm rake in nearly $200 million in undeserved fees. Tilton and others then filed suit challenging the SEC’s use of an Administrative Proceeding as unconstitutional.

Although this challenge, and its brethren, initially looked like long shots given applicable law, Tilton’s lawyers have seized upon a recent favorable ruling by a Georgia federal court in Hill v. SEC June 19, 2015 blog post for Hill case to argue that the administrative proceeding should be halted because the SEC’s Administrative Law Judge was not properly appointed. Count on this argument being advanced in all similar cases immediately, if not sooner. See, e.g. June 25, 2015 blog post on Duka case. 

Whatever challenges may come, though, as we have written in these pages Nov 7, Feb 12 and Mar 13 blog posts, the SEC is clearly moving in the direction of bringing cases in its home court. Over the next few years, challenges such as this one will help to generate a new jurisprudence which will serve to revisit age-old assumptions behind the Administrative Procedure Act. Until clarity on the SEC’s use of Administrative Proceedings is provided, however, respondents can expect to face the furious pace and limited discovery rights these proceedings entail.

Dennis A. Stubblefield and Jeffrey T. Petersen, Esq. Shustak Reynolds & Partners, P.C.  Shustak Reynolds & Partners, with offices in California and New York, focuses on financial services law and represents broker dealers, investment advisers, registered representatives and high net worth investors.  Dennis can be reached in Irvine at 949.451.6800and Jeff can be reached in San Diego at 619.696.9500.  Contact our firm today for a confidential analysis of your situation. 

Share This Article linkedin