Appeal by ‘Diva of Distressed’ spotlights SEC in-house court

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Publisher: Reuters
Author: Nate Raymond
 

The U.S. Securities and Exchange Commission’s controversial use of in-house judges to enforce federal securities laws is about to undergo a major test.

The 2nd U.S. Circuit Court of Appeals in New York on Wednesday will hear arguments over whether to revive a lawsuit by Lynn Tilton, a private equity chief dubbed the “Diva of Distressed,” to block the SEC from pursuing fraud charges in an in-house administrative proceeding instead of federal court.

Critics say the proceedings are unfair because there are no juries, and defense lawyers have a limited ability to depose witnesses and gather evidence. Some, including Tilton, also say the appointment of administrative judges, who are on the SEC payroll, is unconstitutional.

The SEC charged Tilton, 56, and her Patriarch Partners firm in March with hiding the poor performance of assets underlying three collateralized loan obligation funds that raised over $2.5 billion.

Tilton and Patriarch deny wrongdoing, and have said their investment strategy was consistently disclosed. Should the in-house court not intervene, Tilton faces trial on Oct. 13.

The decision by the 2nd Circuit could prove a major factor in the SEC’s ability to continue pursuing enforcement actions administratively, invoking the 2010 Dodd-Frank law granting it the authority to bring more cases before its in-house court.

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By : Securex /September 15, 2015 /SEC News and Public Statement /0 Comment