Constitutional challenges to the SEC's use of administrative proceedings to carry out enforcement actions continue to find no success in federal circuit court. Last week, the Eleventh Circuit joined three other circuits that have considered and rejected such challenges when it ruled in the SEC's favor in two cases that had been consolidated for appeal: SEC v. Gray Financial Group and SEC v. Hill.  

The Eleventh Circuit's ruling follows the June 1, 2016 ruling of the Second Circuit, which similarly held in Tilton v. SEC that federal courts do not have subject matter jurisdiction over challenges to the constitutionality of the SEC's APs. Therefore, these appellate courts have consistently held, SEC respondents in APs may not seek the aid of a federal court until the SEC's action against them is concluded.

These recent holdings by the Second and Eleventh Circuits are consistent with the holdings last year by the Seventh Circuit (Bebo v. SEC) and the D.C. Circuit (Jarkesy v. SEC) courts. Although a small number of federal district courts have issued preliminary injunctions preventing the SEC from pursuing APs against respondents under the theory that the AP process is "likely unconstitutional," that argument has now failed in all four of the appellate circuit courts to consider the issue.

 

The next circuit court decision on this issue may come in the Fourth Circuit case of Bennett v. SEC. As I discussed here back in January 2016, Bennett employed a novel tactic to challenge the SEC's controversial in-house court when she simply refused to attend the AP proceedings against her, labeling it a "kangaroo" court. “I refused to participate in their ochlocratic so-called judicial process, especially in the absence of substantive evidence of wrongdoing on my part,” Bennett stated. The SEC proceeded in her absence, and the case is now pending in the Fourth Circuit. 

 

 

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