Staff Gone Rogue: Federal Action Without Commission Approval — SEC Roundup
By Nicolas Morgan
By Tom Zaccaro
Welcome to SEC Roundup, a bimonthly video series by former Securities and Exchange Commission senior trial counsels Nick Morgan and Tom Zaccaro, founders of the nonprofit advocacy group Investor Choice Advocates Network.
A highly unusual SEC administrative proceeding presided over by an administrative law judge has emerged. Just the fact that an ALJ is actively presiding over a contested proceeding is news, coming on the one-year anniversary of SEC v. Jarkesy, the Supreme Court decision that appeared to spell the end of ALJs.
The case involves a long-running SEC administrative enforcement action against Emmanuel Lemelson that followed a jury trial that resulted in a split verdict. The administrative proceeding is seeking to impose bars on Lemelson based on the entry of the federal court injunction.
But recent developments in this case are unprecedented for another reason: the Enforcement Division filed a federal court action to enforce a subpoena issued in the administrative proceeding without first obtaining the necessary permission from the commission. When defense counsel called foul, the division quickly backpedaled and withdrew the federal court action. At the same time, the division sent emails about the case to an attorney in SEC Chairman Paul Atkins' office, the same kind of serious breach that caused the SEC to dismiss 42 pending administrative proceedings last year.
Despite a new chair, and despite three Supreme Court opinions trimming administrative proceedings (Lucia, Cochran and Jarkesy), SEC administrative proceedings are continuing with the same flaws and an Enforcement Division apparently emboldened to act without SEC authorization.
Two former senior SEC attorneys, Sarah Heaton Concannon of Quinn Emanuel and Russ Ryan of the New Civil Liberties Alliance, discuss the issue.
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