Source: https://securitiesdiary.com/tag/cameron-elliot/
Timestamp: 2019-04-22 16:23:46+00:00

Document:
The information that stirred the inquiry included the May 6, 2015 Wall Street Journal article by Jean Eaglesham, which reported that the SEC’s Division of Enforcement prevailed in about 90% of the cases sent to the SEC administrative law judges (see SEC Wins With In-House Judges: Agency prevails against around 90% of defendants when it sends cases to its administrative law judges), and a Securities Diary June 30, 2015 blog post entitled “SEC Bumbles Efforts To Figure Out How Its Own Administrative Law Judges Were Appointed.” The Interim Report also referenced another, May 7, 2015 Securities Diary post “Fairness Concerns About Proliferation of SEC Administrative Prosecutions Documented by Wall Street Journal,” which reported on the content of the May 6 Wall Street Journal article.
Ms. Williams told the OIG that “Chair Mary Jo White requested an OIG investigation of the alleged bias issue because the identified concerns could impact all ALJs and the SEC administrative proceedings. The Interim Report can be read here: Interim Report of Investigation by SEC Office of Inspector General into Possible SEC ALJ Bias.
It is troubling, however, that there is no reference to any effort to interview former ALJ Lillian McEwen, who made the troubling statements to the Wall Street Journal. Ms. McEwen later reportedly said that she would be willing to be interviewed on this matter by the Commissioners. It is important for the OIG to lay out precisely what efforts have been made to flesh out her views on this issue before issuing any clean bill of health for the SEC’s administrative process.
In addition, the statistics showing an unusually high success rate for the Enforcement Division should be confirmed or rejected through a thorough analysis, and if a statistically significant higher success rate is found for administrative proceedings over the Division’s federal court prosecutions, it is essential that the OIG make every effort to determine that the source of that differential is not, even in part, attributable to inherent biases in either the ALJs themselves or the process they use to reach their results. Anything short of this will not put the serious due process and fairness issues to rest. The courts — including the Supreme Court in a key employment discrimination case this past term — often accept that a statistically provable disparate impact can provide evidence of underlying concerns. That is certainly not a precise analogy for what may be happening here, but if there is a compelling statistical case (and a 90% win rate, or even 100% for some judges, suggests there may be), it should not be ignored.
This being said, it is encouraging that Chair Mary Jo White has seen fit to cause this inquiry to occur. The apparent determination not to make the existence of the inquiry public is a little perplexing, given the publicity surrounding the accusations. Nevertheless, she should get credit where it is due. Those facing prosecution in a possibly biased forum argue, however, that it is not enough to turn to an in-house IG to investigate possible in-house bias. Lynn Tilton, who is challenging the constitutionality of her administrative enforcement action, tweeted in response: “This defendant feels no comfort that the SEC’s Internal IG investigates bias by its own Judges in its own Courts.” This skepticism that the SEC’s IG can perform a truly independent investigation must be met by an investigative process so thorough and informed that it is beyond reproach.
This entry was posted in Administrative Proceedings, SEC Enforcement, Securities Law and tagged administrative courts, administrative law judge, administrative law judges, administrative proceeding, administrative proceedings, ALJ, ALJ Brenda Murray, ALJ Cameron Elliot, Cameron Elliot, Chief ALJ Murray, constitutionality, due process, Enforcement Division, equal protection, Erica Williams, former ALJ McEwen, Interim Report, Jean Eaglesham, lawyer, legal analysis, Lillian McEwen, Mary Jo White, Office of Inspector General, OIG, SEC, SEC enforcement, SEC OIG, securities, securities fraud, securities litigation, Timbervest, Wall Street Journal on August 10, 2015 by Straight Arrow.
The SEC’s handling of the controversy over whether its administrative law judges were properly appointed under the Appointments Clause of Article II of the Constitution continues to amuse, or horrify, depending on your point of view. Putting aside the actual substance of the Appointments Clause issue itself, which will work its way through the courts, when it comes to the mere disclosure of the underlying facts at issue about the appointment of the SEC’s ALJs, the SEC staff has acted with questionable competence, and apparent insubordination. That’s a strong statement, so you can decide for yourself, based on recent events in the In the Matter of Timbervest, LLC administrative proceeding.
You may recall that the Timbervest administrative enforcement action was tried to SEC ALJ Cameron Elliot, who issued an Initial Decision finding for the Division of Enforcement in all respects except that he concluded two of the individual respondents lacked the scienter required for aiding and abetting the firm’s violations, and that the five-year statute of limitations in 28 U.S.C. § 2462 precluded the associational bars sought against the individuals and the revocation of Timbervest’s adviser’s license. Both sides petitioned for review by the Commission, which was granted. Before the Commission itself, the respondents pressed their constitutional challenges to the administrative proceeding, and the Commission asked for further briefing on those issues. See Briefing of ALJ Constitutionality Before SEC Leaves Resolution in Doubt.
A week later, the Commission issued another Order Concerning Additional Submission and Protective Order, in which it “invited” ALJ Elliot to provide an affidavit addressing whether he was ever aware of ALJs being subjected to such pressures. See SEC “Invites” ALJ Cameron Elliot To Provide Affidavit on Conversations “Similar” to Those Described by Former ALJ.
The responses to these Orders were remarkable. In response to the second Order, Mr. Elliot declined to provide the affidavit “invited” by the Commission. That certainly raised the possibility that the content of such an affidavit would be problematic. See SEC ALJ Cameron Elliot Declines To Submit Affidavit “Invited” by the Commission. But that at least was consistent with the SEC’s Order, which made it clear it was not mandating that ALJ Elliot provide the affidavit.
The Division of Enforcement’s response to the first Order was even more extraordinary. It refused to provide the ordered “affidavit . . . setting forth the manner in which ALJ Cameron Elliot and Chief ALJ Brenda Murray were hired, including the method of selection and appointment,” instead providing an affidavit only containing “the factual information the Division believes legally relevant to resolving Respondents’ Article II-based constitutional claims,” which said only that “ALJ Elliot was not hired through a process involving the approval of the individual members of the Commission.” In further explanation, the Division justified failing to comply with the Commission’s Order because “the Division believes that the facts set forth in the affidavit — i.e., facts relating to ALJ Elliot’s hiring — are sufficient for the Commission’s consideration of Respondents’ Appointments Clause challenge.” The precise language of the affidavit was: “Based on my knowledge of the Commission’s ALJ hiring process, ALJ Elliot was not hired through a process involving the approval of the individual members of the Commission.” See Division’s Notice of Filing, with Attached Affidavit of Jayne L. Seidman.
This submission was a stunning act of insubordination, bordering on contempt. It plainly declined to address the specific issues ordered by the Commission, and did so on the presumptuous basis that “the Division believes” the information ordered by the Commission was not necessary for the Commission to decide the issues raised by the respondents. If the Division wanted relief from the Order, it should have moved for it to be revised. It was impermissible to ignore the command based on what the Division — at this point simply a party in the proceeding — believed should have been requested. But even beyond this, the affidavit the Division provided was misleading. It did not even attempt to state the facts of Mr. Elliot’s hiring. Instead, it was only “based on” “knowledge of the Commission’s ALJ hiring process,” and the Division’s Notice was founded on an unsupported “understanding” that the normal process was used. So, even in the single respect the Division responded to the Order, it did so based on presumption, not investigation. The combination of brazenly ignoring the Order, and then providing an affidavit not founded on facts, is conduct that should be reprimanded, if not sanctioned. If a respondent had acted this way in response to a Commission Order, there would be more than silence from the Commission.
This response makes it clear that records available at the SEC, could have informed the Division that the affidavit it provided was inaccurate. Numerous people knew that ALJ Elliot was initially hired to serve at the Social Security Administration, apparently including the affiant, Ms. Seidman, but this fact was ignored. Presumably the Division did not find it convenient actually to search the SEC’s own HR records before submitting the erroneous affidavit. The difference here may not be material, which was ALJ Elliot’s stated view, but that is surely not within the Division’s purview to decide. When asked for the facts, the Division (a) declined to seek them out, and (b) made an inaccurate filing instead.
The Division finally corrected the record in the Timbervest case on June 23, with the filing of an additional Notice: SEC June 23 Notice in Timbervest Administrative Proceeding. That Notice attached the transcript of comments made by ALJ Elliot in the Bebo hearing, but otherwise said the Division still had not taken steps to confirm whether these recollections were accurate, including, apparently, not even seeking to obtain documents that could clarify the record. Interestingly, although the Division’s original, inaccurate, Notice is posted on the docket, the mea culpa corrective Notice, with the excerpted portions of the Bebo transcript, is strangely missing, just like Timbervest’s original motion for discovery.
Of course, as ALJ Elliot noted, at a minimum the Division of Enforcement is “embarrassing themselves by saying things that are wrong.” If this weren’t the government seeking to impose major penalties and other sanctions, we could dismiss them as “The Gang That Couldn’t Shoot Straight” (credit to Jimmy Breslin, RIP).
But what happened here is much worse. The Commission, sitting in its adjudicatory capacity, ordered that the Division provide certain information. The Division refused to do so, declined to seek relief from the order, and instead substituted erroneous information, which a modest amount of diligence would have shown was certainly incomplete, if not inaccurate. If the Division were held to the standards of performance it routinely applies to those it investigates and prosecutes, there would be meaningful repercussions, if not outright accusations of reckless misconduct.
This entry was posted in Administrative Proceedings, Enforcement Overreaching, SEC Enforcement, Securities Law and tagged administrative courts, administrative law judge, administrative proceeding, affidavit, ALJ, ALJ Brenda Murray, Appointments Clause, Article II, Bebo, Bebo v. SEC, Brenda Murray, Cameron Elliot, constitutionality, due process, Enforcement Division, equal protection, In the Matter of Timbervest, In the Matter of Timbervest LLC, Jayne Seidman, Jimmy Breslin, Laurie Bebo, lawyer, legal analysis, Lillian McEwen, SEC, SEC enforcement, SEC Order, securities, securities fraud, securities law, securities litigation, separation of powers, The Gang That Couldn't Shoot Straight, Timbervest, Timbervest LLC, Wall Street Journal on June 30, 2015 by Straight Arrow.
Yesterday, we described the SEC’s desperate attempt to nullify the assignment of the case Timbervest, LLC v. SEC to Judge Leigh Martin May. That was based on the argument that the other cases already before Judge May identified as “related cases,” Hill v. SEC and Gray Financial Group v. SEC, were not actually “related cases” because “the cases do not ‘involve the same issue of fact,’” and they “do not arise out of the same event or transaction.” See SEC, Desperate To Avoid Judge May, Challenges Related Case Designation in Timbervest Action. Timbervest argued this was wrong because “they all arise out of the same facts concerning how SEC administrative law judges (‘ALJs’) are hired and what authority and powers SEC ALJs possess,” and the factual differences in the underlying SEC allegations in each case have no bearing on the constitutional issues raised in the respective complaints in these actions.
Today, the SEC filed its response. It can be read here: SEC reply in opposition to related case designation. It acknowledges that the cases have some common “facts” but argues that common “facts” are not common “issues of fact.” In the SEC’s words, “At best, Plaintiffs’ argument boils down to the contention that these cases involve some of the same ‘facts,’ rather than ‘issues of fact.’” The SEC’s argument turns on the assertion, made without citation, that an “issue of fact” must be a “dispute of fact,” and because the SEC will not dispute the common “facts” in these cases, they cannot be considered “issues of fact” because they will be undisputed. (“their arguments ignore the distinction between a mere ‘fact’ and an ‘issue of fact,’ i.e., a dispute of fact”). The best the SEC can do to support this view is a cite to Black’s Law Dictionary, which is quoted as saying: “An ‘issue of fact’ is ‘[a] point supported by one party’s evidence and controverted by another’s.'” I don’t have a copy of Black’s Law Dictionary handy, but I guarantee you this purported definition had nothing to do with the assignment of cases to district court judges.
I have to chuckle. No wonder lawyers are not often trusted by ordinary folks. They concoct these arguments whether they make sense or not. What ordinary person out there would think that two paragraphs with identical facts would not have the same “issues of fact”? In any case, that doesn’t really matter here because it is patently obvious that in the context at issue here — how to assign a newly-filed case — a court (actually, a clerk of court) cannot possibly apply the standard the SEC passionately espouses because there is no way to determine at that stage which “facts” will or will not be “disputed.” At this stage, there is only one source that can be used to assign the case — the allegations in the complaint. If the allegations in the complaint involve factual contentions that materially overlap the facts alleged in another pending case, then the “related case” designation should be appropriate. Last I checked, no clerk of court sought input from the defendant in an action about what factual allegations would be disputed before making a “related case” assignment. Got a cite for that, SEC?
I wonder whether, having made this cute argument, the SEC will argue against being judicially estopped from disputing any of the facts alleged in the complaint when it files its Answer. SEC counsel has now represented there are no material “disputed” facts, right?
I also wonder what Judge May is thinking about all of these machinations conjured up by the SEC solely to avoid having her preside over the Timbervest complaint? If she has a sense of humor, she’ll chuckle as well, and move on to the job of deciding whether the few important facts that differ between Timbervest v. SEC and Hill v. SEC — which involve the different status of the respective administrative actions when the complaints were filed — alters the jurisdictional analysis in her Hill opinion.
This entry was posted in Administrative Proceedings, Enforcement Overreaching, SEC Enforcement, Securities Law and tagged administrative courts, administrative law judge, administrative proceeding, ALJ, ALJ Cameron Elliot, ALJ James Grimes, Article II, Cameron Elliot, common facts, common issues of fact, constitutionality, due process, Enforcement Division, Gray Financial Group, Gray Financial Group v. SEC, Hill v. SEC, In the Matter of Charles L. Hill, In the Matter of Timbervest LLC, issues of fact, Judge Leigh Martin May, Judge Leigh May, lawyer, legal analysis, related case, SEC, SEC enforcement, securities, securities fraud, securities law, securities litigation, separation of powers, Timbervest, Timbervest LLC, Timbervest LLC v. SEC on June 18, 2015 by Straight Arrow.

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