Source: https://securitiesdiary.com/tag/irreperable-harm/
Timestamp: 2019-04-21 10:56:38+00:00

Document:
On April 1, 2015, Lynn Tilton and the private equity funds she runs filed a complaint against the SEC seeking declaratory and injunctive relief against the SEC’s pursuit of an enforcement action against them in the SEC’s captive administrative law court. The complaint is available here: Tilton v. SEC Complaint. The complaint follows the general formula of other actions of this nature filed recently. Perhaps even moreso than usual, since her lawyers, Skadden Arps, were the architects of the action filed by Joseph Stilwell when he was the target of an SEC administrative enforcement action (Stilwell v. SEC). The Stilwell action was never decided; the SEC case against Stilwell was settled (In the Matter of Joseph Stilwell and Stilwell Value LLC). Rumor has it that the SEC was especially eager to do so to rid itself of Stilwell’s legal action in the SDNY, but we can’t attest to that. We previously wrote that the constitutional challenges to the SEC’s administrative law court are far from frivolous in light of existing Supreme Court precedent: Challenges to the Constitutionality of SEC Administrative Proceedings in Peixoto and Stilwell May Have Merit.
The Tilton complaint is also supplemented with new allegations based on events after the Stilwell and Peixoto complaints were filed. These include the call by Commissioner Piwowar for the adoption of standards for determining the forum to be used in SEC enforcement actions, and the inability of Enforcement Director Ceresney to identify in Congressional testimony any such standards. And, unlike the Stilwell case, Ms. Tilton and her private equity funds are not subject to statutorily-mandated SEC regulatory control.
The SEC’s administrative machinery does not provide a reasonable mechanism for raising or pursuing Plaintiffs’ claims. The SEC’s Rules of Practice do not permit counterclaims against the SEC, nor do they allow the kind of discovery of the SEC personnel necessary to elicit admissible evidence of such claims, such as interrogatories and demands for admissions. Meaningful judicial review cannot await an appeal to the U.S. Court of Appeals following a final Commission decision. The curtailed ALJ proceeding is unlikely to create a full record on Plaintiffs’ claims adequate for review in the Court of Appeals. As described in greater detail below, Plaintiffs perform a sensitive role managing investment funds and deeply distressed companies that employ tens of thousands of people. If they are forced to undergo an unconstitutional administrative proceeding, and are found liable, it may well be too late to salvage important value for the funds. The OIP allegations do not take issue with Ms. Tilton’s and Patriarch’s performance of their vital function in executing the investment strategy of turning around distressed businesses, and an unconstitutional administrative proceeding should not be permitted to interfere with such performance and put American jobs at risk. The SEC ALJ is in no position to rule that he or she has been unconstitutionally appointed and has no legal authority whatsoever. And the Commission, having ordered the administrative proceeding and directed action by the SEC ALJ, is in no position to take a fresh look at the constitutional infirmities of its own ALJ program.
administrative proceedings further exacerbates that harm.
Allowing the SEC to pursue an administrative proceeding while the instant complaint is pending would require the expenditure of substantial legal fees defending against an unconstitutional action. Moreover, plaintiffs cannot assert counterclaims or seek declaratory relief in an administrative proceeding, foreclosing any possibility of review until an appeal to a federal circuit court of appeals. The burdens incurred during an administrative proceeding would be for naught, because such administrative proceeding is unconstitutional and the SEC likely would try to reprise its case in a lawful setting, such as federal district court. However, forcing Plaintiffs to litigate twice would compound costs, lost time, and reputational risk….
The availability of an appeal after an administrative proceeding to a federal circuit court of appeals cannot avoid it, because the administratively-imposed sanction already may take effect – and the damage therefore already substantially and harmfully done – by the time the appellate court made a ruling.
Likewise, the harm cannot be remedied after the fact by money damages. Various immunity doctrines substantially constrain Plaintiffs’ ability to seek damages from the SEC. Furthermore, even if damages were procedurally available, the reputational harm to Ms. Tilton and Patriarch – possibly permanent and devastating to Ms. Tilton’s business – should the SEC impose administrative sanctions would be impossible to monetize. And because Ms. Tilton’s business model involves debt and equity positions in private distressed companies, which positions are illiquid, accurately calculating the value of the lost ownership opportunities that would result from an unfavorable ruling in an unconstitutional administrative proceeding would be well-nigh impossible.
We will see whether this effort is successful, or perhaps whether the judge hearing the case, Judge Ronnie Abrams, has a more realistic sense of what constitutes irreparable harm in an action in which the very forum that is used to adjudicate the SEC’s claims is the subject of a constitutionality challenge, and the financial entities involved may well be defunct before judicial consideration is possible.
This entry was posted in Administrative Proceedings, SEC Enforcement, Securities Law and tagged 2d Circuit, administrative courts, administrative law judge, administrative proceeding, ALJ, Article II, Bebo, Bebo v. SEC, constitutionality, due process, Enforcement Division, equal protection, fraud, In re Tilton, In the Matter of Lynn Tilton, injunction, injunctive relief, irreperable harm, Judge Abrams, Judge Ronnie Abrams, lawyer, legal analysis, Lynn Tilton, Patriarch Partners, Peixoto, Peixoto v. SEC, Ronnie Abrams, SDNY, SEC, SEC enforcement, securities, securities fraud, securities litigation, Skadden, Skadden Arps, Stilwell, Stilwell v. SEC, Tilton, Tilton v. SEC on April 2, 2015 by Straight Arrow.

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