Yesterday a financial advisor named Dawn Bennett, who is the respondent in an SEC administrative proceeding, announced that she is employing a new tactic to challenge the SEC's controversial in-house court.
Bennett stated that while she waits for the Fourth Circuit to decide her pending claim that the AP against her is unconstitutional, she has "affirmatively declined on principle to attend or participate in the Securities and Exchange Commission’s unconstitutional administrative proceeding against her and Bennett Group Financial Services, LLC." She added that while she knows this tactic has never been attempted before, "sometimes you have to stand up for what you believe in, even if there are personal consequences. I believe in the Constitution, so I won’t attend their kangaroo court."
As I have been following on this blog for a while now, the SEC's use of administrative proceedings to carry out a growing number of its enforcement actions has been met with objections that such APs are unconstitutional for various reasons. Indeed, at least a few respondents in SEC APs have persuaded federal district court judges to enjoin the agency from proceeding with an enforcement action, finding the AP process to be “likely unconstitutional.” Several other courts, however -- most notably the Seventh Circuit (Bebo v. SEC) and the D.C. Circuit (Jarkesy v. SEC) appellate courts -- have rejected such challenges, finding that federal courts do not have subject matter jurisdiction over challenges to the constitutionality of the SEC's APs.
In Bennett's case, U.S. District Court Paul Grimm (D. Md.) ruled against her challenge to the SEC's AP and refused to issue an injunction halting the proceedings. Judge Grimm found that he did not have subject matter jurisdiction to hear the case.
What are the consequences of Bennett simply refusing to appear in the ongoing AP against her? Although the SEC could seek a default judgment, it appears it has not done so. AdvisorHub reports that the agency is instead proceeding with its argument before the ALJ in Bennett's absence. Bennett's attorney, Gregory Morvillo, told AdvisorHub that any decision reached in the ALJ proceedings will be appealed to the SEC.