Wednesday, May 25, 2022

SEC Proposes to Enhance Disclosures by Certain Investment Advisers and Investment Companies About ESG Investment Practices

The Securities and Exchange Commission today proposed amendments to rules and reporting forms to promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of environmental, social, and governance…

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SEC Proposes Rule Changes to Prevent Misleading or Deceptive Fund Names

The Securities and Exchange Commission today proposed amendments to enhance and modernize the Investment Company Act “Names Rule” to address changes in the fund industry and compliance practices that have developed in the approximately 20 years since the…

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SEC Halts Alleged Ongoing $39 Million Fraud by Hedge Fund Adviser

The Securities and Exchange Commission today announced fraud charges against Detroit-based EIA All Weather Alpha Fund I Partners LLC (EIA) and its sole owner, Andrew M. Middlebrooks, for allegedly engaging in a multi-year scheme that included the…

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SEC Charges RiverSource Distributors with Improper Switching of Variable Annuities

The Securities and Exchange Commission today announced settled charges against RiverSource Distributors Inc. for improper switching or replacing of variable annuities. This is the SEC’s first-ever enforcement proceeding under Section 11 of the Investment…

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Tuesday, May 24, 2022

SEC Charges TradeZero America and Co-Founder with Deceiving Customers about Meme Stock Trading Halts

The Securities and Exchange Commission today charged broker-dealer TradeZero America Inc., and its co-founder, Daniel Pipitone, with falsely stating to the firm’s customers that they didn’t restrict the customers’ purchases of meme stocks when in fact…

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Richard R. Best Named Director of Division of Examinations

The Securities and Exchange Commission today announced the appointment of Richard R. Best as Director of the Division of Examinations, effective immediately. He has served as the Division's acting director since March 23, 2022. "I've valued Rich's…

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Monday, May 23, 2022

SEC Charges BNY Mellon Investment Adviser for Misstatements and Omissions Concerning ESG Considerations

The Securities and Exchange Commission today charged BNY Mellon Investment Adviser, Inc. for misstatements and omissions about Environmental, Social, and Governance (ESG) considerations in making investment decisions for certain mutual funds that it…

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Friday, May 20, 2022

SEC Charges Wells Fargo Advisors With Anti-Money Laundering Related Violations

The Securities and Exchange Commission today announced charges against Wells Fargo Advisors for failing to file at least 34 Suspicious Activity Reports (SARs) in a timely manner between April 2017 and October 2021. Wells Fargo Advisors, the St. Louis-…

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Thursday, May 19, 2022

SEC's ALJ Problems...Again

Readers will recall my exploits with the SEC's ALJ system a few years back, where my client, and others, were forced into that system rather than federal court, lost at trial with significant procedural and due process right violations. We appealed to the Commission, argued the appeal before the Commission in Washington.

While the appeal was pending the United States Supreme Court decided Lucia v. SEC, which called into question the legitimacy of the appointment of some of the SEC's ALJs. Because of that decision, the Commission stayed all proceedings involving thse issue. The Commission later decided that those respondents, including my client, would be given the opportunity for a new hearing, before a different ALJ.

The case thereafter settled, but the problems with the SEC ALJ system persist.

Now the Court of Appeals for the Fifth Circuit has found, in Jarkesy vs. SEC , that the SEC's in-house trial of Mr. Jarkesy violated his constitutional rights, again regarding the appointment of the ALJ.

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FOR IMMEDIATE RELEASE                                                      

SEC Proceeding Violated Constitutional Right to Jury and Vesting & Take Care Clauses, 5th Cir. Rules 

 

George R. Jarkesy, Jr., et al. v. U.S. Securities and Exchange Commission

 

Washington, DC (May 18, 2022) – The U.S. Court of Appeals for the Fifth Circuit handed down a major decision today, vacating SEC’s decision in Jarkesy v. SEC and finding that the agency’s in-house adjudication of Mr. Jarkesy violated his constitutional rights. The New Civil Liberties Alliance filed an amicus brief in support of his appeal of an SEC Final Order that imposed sanctions for alleged violations of securities laws. NCLA’s brief argued that the Administrative Law Judge (ALJ) was improperly insulated from presidential removal and Mr. Jarkesy was deprived of his right to a trial by jury. Siding with NCLA, the court ruled in his favor on both claims.

 

George R. Jarkesy, Jr. was an investment professional and host of a nationally syndicated talk-radio program. Years after an initial investigation, SEC issued an Order Instituting Proceedings in 2013 against Mr. Jarkesy and his investment group, alleging violations of securities laws to be tried before an ALJ. Although Mr. Jarkesy tried to challenge the constitutionality of SEC’s administrative proceedings in federal court, the U.S. Court of Appeals for the D.C. Circuit denied jurisdiction in 2015. Thereby forced to undergo a seven-year journey through the administrative gristmill, he renewed those constitutional claims on his appeal of the SEC’s Final Order.

 

Writing for the majority, Judge Jennifer Elrod stated that the proceedings against Mr. Jarkesy suffered from three independent constitutional defects: (1) Petitioners (Jarkesy and his company) were deprived of their constitutional right to a jury trial; (2) Congress unconstitutionally delegated legislative power to SEC by failing to provide an intelligible principle by which it could exercise such delegated power; and (3) the statutory restrictions on removal of SEC ALJs violate separation-of-powers principles by interfering with the President’s control of the Executive Branch. The opinion cites NCLA’s founder, Prof. Philip Hamburger, several times. It invokes Cochran v. SEC too, a 2021 NCLA Fifth Circuit victory, on which the U.S. Supreme Court granted certiorari earlier this week to address the separate question of when individuals who face administrative proceedings before the SEC may bring their structural constitutional claims to a federal court.

 

The Fifth Circuit’s ruling recognizes SEC’s ALJ regime is unconstitutional because the removal protections ALJs enjoy make them unaccountable to the President. In 2010, the U.S. Supreme Court’s Free Enterprise Fund case made clear that multiple levels of “for-cause limitations … contravene the Constitution’s separation of powers.” Today’s decision also held that the federal securities laws—by authorizing SEC to impose civil penalties in an administrative proceeding—violated Mr. Jarkesy’s Seventh Amendment right to a trial by jury. Finally, the Fifth Circuit ruled that SEC’s in-house adjudication scheme delegates law-making power to an unaccountable and unelected administrative agency, whereas Article I of the Constitution vests all legislative power in Congress.

 

NCLA released the following statements:

“The Supreme Court held in 2010 that executive branch officers may not enjoy more than one layer of protection from removal. By vacating this SEC proceeding seven long years after irremediable constitutional, financial and reputational damage has been done, the Fifth Circuit’s ruling exposes the irrational and ruinous heart of darkness that is compelled agency adjudication.

— Peggy Little, Senior Litigation Counsel, NCLA 

 

“SEC and other federal agencies for too long have gotten away with denying jury-trial rights to those whom they target in enforcement actions. The Fifth Circuit’s decision resoundingly affirms the jury-trial right guaranteed by the Seventh Amendment in all ‘suits at common law,’ a category that includes SEC’s claim here.”

— Rich Samp, Senior Litigation Counsel, NCLA

 

“NCLA applauds the Fifth Circuit’s recognition that Article I, Section 1 of the Constitution vests all legislative power in Congress. The Constitution separates legislative, enforcement and adjudicative power into three different branches precisely to protect liberty. Uniting those separate powers in the hands of one agency directly led to SEC’s violation of Mr. Jarkesy’s constitutional rights.”

— Mark Chenoweth, NCLA President


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Mark Astarita is a nationally recognized securities litigation attorney and a partner in the law firm of Sallah Astarita & Cox, LLC. He can be reached at 212-509-6544 or by email at mja@sallahlaw.com

Tuesday, May 17, 2022

SEC Charges Allianz Global Investors and Three Former Senior Portfolio Managers with Multibillion Dollar Securities Fraud

The Securities and Exchange Commission (SEC) today charged Allianz Global Investors U.S. LLC (AGI US) and three former senior portfolio managers with a massive fraudulent scheme that concealed the immense downside risks of a complex options trading…

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