Two men share securities regulation news

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Securities Regulation Daily, August 10, 2015

ALJ saga lingers as SEC readies for Duka administrative hearing

By Mark S. Nelson, J.D.

The SEC and Barbara Duka remain at loggerheads over the Commission’s use of administrative law judges. The SEC told Judge Richard M. Berman that the agency plans to move forward against Duka, while Duka’s lawyers once again asked the court to stop the SEC’s in-house case against her. ALJ James E. Grimes had temporarily halted the Duka matter in reply to last week’s court order calling on the SEC to say if it would cure the appointments clause issue within the seven days ending today. As of publication, Judge Berman had not issued any additional orders in the case (Duka v. SEC, August 3, 2015, Berman, R.).

Deepening participation. Lawyers for Duka told Judge Berman that the SEC is “unwilling” to take the steps needed to cure the constitutional defects in its administrative proceeding against Duka. Her legal team said she will now be required to engage in a “deepening” process as she must navigate numerous pre-hearing milestones leading up to the hearing start date of September 16.

Duka’s lawyers also pointed to developments in the Hill and Gray cases, both before Judge Leigh Martin May in the Northern District of Georgia, in which the judge denied the SEC’s request to stay the preliminary injunction in Hill pending appeal, and she ordered the Gray proceeding stopped. (ALJ Cameron Elliot recently cancelled the Gray administrative proceeding). Both Hill and Gray raise constitutional issues similar to those asserted by Duka.

But DOJ lawyers representing the SEC explained to Judge Berman that the Commission has heard from the parties in another administrative proceeding regarding the constitutional issues raised by Duka. The government noted that the Commission has yet to issue a decision or take other public action in the other matter. The government also said that unless Judge Berman orders differently, the SEC’s enforcement division must ready its case against Duka starting in mid-August, once ALJ Grimes’s stay lifts.

Intent to cure. Judge Berman had reserved judgment regarding Duka’s demand for injunctive relief for the last seven days so the SEC could explain to the court how or if it plans to cure any defects in the appointment of its ALJs. That request drew heavily from a June ruling by Judge May in the Hill case, which found the SEC’s ALJ regime likely ran afoul of the U.S. Constitution.

According to Judge Berman, the SEC’s ALJs may exercise enough discretion to be considered inferior officers, just like the Tax Court’s special trial judges did in Freytag. Under this analysis, the SEC would be an executive branch department, and the SEC’s commissioners would be the head of that department. Judge Berman did acknowledge the D.C. Circuit’s Landry opinion, which held that the Federal Deposit Insurance Corporation’s ALJs were employees, an argument the SEC has pressed many times in the cases disputing its ALJ regime.

Judge Berman also said there was no dispute that the ALJs then involved in Duka’s administrative proceeding were not appointed by the SEC’s commissioners. He cited an affidavit given by an SEC official regarding ALJ Elliot in one the administrative matters where the Commission has heard arguments on the appointments clause issue. Last Friday, the SEC allowed that affidavit and additional briefing to be submitted in yet another matter challenging the agency’s ALJs. In late July, SEC Chief ALJ Brenda P. Murray reassigned Duka’s proceeding from ALJ Elliot, to whom it was assigned in January, to ALJ Grimes.

The case is No. 15-cv357.

Attorneys: Daniel Goldman (Petrillo Klein & Boxer LLP) for Barbara Duka. Jean Lin, U.S. Department of Justice, for the SEC.

MainStory: TopStory DoddFrankAct Enforcement FraudManipulation NewYorkNews

Securities Regulation Daily

Introducing Wolters Kluwer Securities Regulation Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.