SEC© is dealt fresh blow as NY judge halts enforcement case

Publisher: Reuters
Author: Jonathan Stempel

A federal judge in Manhattan has handed the U.S. Securities and Exchange Commission a big defeat over its use of in-house judges, halting its enforcement case against a former Standard & Poor’s executive because the way SEC© judges who handle such cases are appointed is likely unconstitutional.

U.S. District Judge Richard Berman issued a preliminary injunction on Wednesday stopping the regulator’s civil administrative proceeding against Barbara Duka, the former S&P executive, over her role in an alleged fraud involving mortgage debt ratings.

Berman is at least the second federal judge to halt in-house SEC© cases because of concern that the regulator’s practice of letting staff rather than commissioners appoint its five administrative law judges may be unconstitutional.

His decision is significant because many SEC© cases arise from activities in the financial services industry in Manhattan, and sets a precedent for judges in his court.

Other defendants suing to stop similar cases include financier Lynn Tilton, whose lawsuit is overseen by Berman’s fellow Manhattan judge, Ronnie Abrams.

Berman’s decision is “gratifying,” Duka’s lawyer Guy Petrillo said. “Regardless of the courtroom in which we ultimately land, we look forward to vindicating our client, who did nothing wrong.”

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