Overview
In an opinion today, Judge Kaplan denied the motion of CDO manager Harding Advisory and its principal Wing Chau to preliminarily enjoin SEC administrative proceedings against them. The hearing has already been completed, but they await a decision that is expected next month. As we reported in March, the plaintiffs initially moved to stay the proceedings before they even began (see our prior post here), but that motion was denied. Harding and Mr. Chau’s basic allegation is that administrative proceedings are so lacking in procedural protections that they violate due process, especially as compared to federal court. Judge Kaplan concluded, however, that they could make those arguments within the administrative process itself – i.e., through an appeal to the Commission and then to the Second Circuit. The cumbersome nature of that route, Judge Kaplan ruled, does not deny the plaintiffs due process:
One passage in plaintiffs’ brief is especially telling. Harding and Chau claim that they have been “forced to expend enormous resources responding to a litany of unfair surprises” and assert that, “[u]nlike large corporate defendants, [they] do not have unlimited resources . . . to continue to litigate” this case. This bid to evoke sympathy highlights the remarkably problematic nature of plaintiffs’ due process arguments. Criminal defendants face trial every day in this and other courthouses -- often with poorly paid, court-appointed counsel because they cannot afford any private representation, let alone the same representation as “large corporate defendants.” Those defendants, many of whom face peril far greater than the administrative penalties facing plaintiffs, cannot interrupt their prosecutions and trials to appeal an allegedly inadequate amount of time to prepare or an adverse discovery ruling. In almost every instance, they must await conviction and final judgment. Delaying judicial review does not violate these criminal defendants’ due process rights any more than requiring plaintiffs to await final adjudication before the SEC would violate theirs.Judge Kaplan concluded the opinion by acknowledging legitimate concerns about SEC administrative cases, but noting that his "modest" role was not to decide policy matters:
The Court recognizes that the growth of administrative adjudication, especially in preference to adjudication by Article III courts and perhaps particularly in the field of securities regulation, troubles some. Part of the concern no doubt comes from persons charged with violations of the securities laws and their counsel. In the time-honored and entirely appropriate way of so many litigants, they usually want a particular forum, and deride alternatives, for no reason more exalted than self-interest. They seek the forum that they believe, rightly or wrongly, would be more likely to find in their favor. Another source of concern is apprehension that allowing the SEC to pursue some cases in administrative proceedings rather than in Article III courts will increase the role of the Commission in interpreting the securities laws to the detriment or exclusion of the long standing interpretative role of the courts . . . . These concerns are legitimate, whether born of self-interest or of a personal assessment of whether the public interest would be served best by preserving the important interpretative role of Article III courts in construing the securities laws -- a role courts have performed since 1933. But they do not affect the result in this case. This Court’s role is a modest one. It is merely to determine whether the Court has the power to reach the merits of plaintiffs’ constitutional claims. Applying [controlling case law], this Court holds that it does not. If plaintiffs lose before the Commission, they will have a full opportunity to present their arguments in a court of appeals. In reaching this conclusion, moreover, this Court has not considered any views concerning the proper or wise allocation of interpretive functions between the Commission and the courts. Those are policy matters committed to the legislative and executive branches of government.There are at least two other challenges pending in the Southern District relating to SEC administrative proceedings (see here and here).
