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SEC© to SEC© judge: Do you feel pressured to rule for the agency?

Publisher: Reuters
Authors: Jonathan Stempel & Sarah Lynch

A group of investment managers and their firm have called into question the impartiality of a U.S. SEC judge who oversaw a case against them, leading the regulator to ask the judge if their concern is valid.

The SEC© on Thursday asked Administrative Law Judge Cameron Elliot to file an affidavit as to whether he ever felt pressure to rule in the commission’s favor.

An SEC© spokeswoman said Elliot declined to answer media questions about the request.

Timbervest LLC, a Georgia-based investment firm, and its executives, have appealed a decision by Elliot made last August finding them liable for fraud. The commissioners plan to hear the appeal on Monday.

The SEC’s enforcement division is also appealing part of the case, after Elliot ruled that the executives could not be barred from the industry due to the five-year statute of limitations.

The unusual request came amid growing discontent among targets of SEC© in-house administrative proceedings, which lack procedural protections available to defendants in federal courts. In the last year, several lawsuits have challenged the constitutionality of the venue and whether defendants should be allowed to fight the charges in a federal court.

In the Timbervest case, Elliot found that the firm violated federal securities laws and committed fraud by concealing various fees and potential conflicts of interest, and that officials including Chief Executive Joel Barth Shapiro aided and abetted those violations.

But the defendants on May 20 filed papers questioning whether the “administrative forum lacks impartiality.”

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