In an opinion yesterday, Judge Rakoff denied a motion to dismiss an SEC complaint against two individuals who traded stocks after learning about an impending acquisition from a co-worker, Thomas Conradt, who, in turn, learned the information from his roommate Trent Martin.  The opinion begins by acknowledging the “difficulties” with having insider trading defined by case law instead of by statute:
Continue Reading Judge Rakoff, Acknowledging “Difficulties” In Defining Insider Trading, Upholds SEC Complaint Notwithstanding Newman Decision

In an opinion today, Judge Kaplan denied the motion of CDO manager Harding Advisory and its principal Wing Chau to preliminarily enjoin SEC administrative proceedings against them.  The hearing has already been completed, but they await a decision that is expected next month.  As we reported in March, the plaintiffs initially moved to stay the proceedings before they even began (see our prior post here), but that motion was denied. Harding and Mr. Chau’s basic allegation is that administrative proceedings are so lacking in procedural protections that they violate due process, especially as compared to federal court.  Judge Kaplan concluded, however, that they could make those arguments within the administrative process itself – i.e., through an appeal to the Commission and then to the Second Circuit.  The cumbersome nature of that route, Judge Kaplan ruled, does not deny the plaintiffs due process:
Continue Reading Judge Kaplan Denies Motion Challenging SEC Administrative Proceedings As Unfair

A complaint filed yesterday is the second SDNY suit (see our post on the first one, here) to argue that SEC ALJ’s are too insulated from accountability to the executive branch, in violation of Article II of the Constitution. The underlying case involves administrative charges against Jordan Peixoto, who allegedly shorted Herbalife stock in advance of a presentation by the hedge fund Pershing Square accusing Herbalife of being a pyramid scheme. Peixoto allegedly received the information from a friend (Filip Szymik) who was roommates with an analyst at Pershing Square. Peixoto argues that the case was brought administratively to avoid having a jury rule on weak evidence and on a novel application of the insider trading laws:
Continue Reading Herbalife Case Raises Second Challenge to Constitutionality of SEC ALJs

Attorneys at Skadden Arps and Post & Schell, on behalf of a client named Joseph Stilwell and his firm, today filed a complaint arguing that SEC administrative proceedings are unconstitutional:

SEC administrative proceedings violate Article II of the U.S. Constitution, which states that the “executive Power shall be vested in a President of the United States of America.”
Continue Reading New Suit Challenges Constitutionality of SEC Administrative Proceedings Based on ALJs’ Insulation From Executive Oversight

In a brief filed Friday, a committee of the U.S. House of Representatives and a staffer, Brian Sutter, argued why they need not comply with an SEC subpoena relating to an investigation under the STOCK Act, which essentially extends the insider trading laws to Congress (see our prior post on the case here). Among other arguments, the committee and Mr. Sutter invoked sovereign immunity:
Continue Reading Congressional Committee Claims Sovereign Immunity From SEC Subpoena

As expected, the Second Circuit’s decision in a pending appeal involving Citibank paved the way for Judge Marrero to approve, in an opinion today, the SEC’s proposed $614 million settlement with SAC Capital. Judge Marrero initially expressed concern about the settlement being on a “neither-admit-nor-deny” basis, but, since then, a jury found former SAC Capital manager Matthew Martoma criminally liable for insider trading, and SAC Capital’s affiliate, CR Intrinsic, pled guilty to criminal insider trading. These facts appeared to assuage Judge Marrero’s earlier concerns:
Continue Reading Judge Marrero Approves $614 Million SAC Capital Settlement With SEC in Light of Second Circuit Ruling in Citi Case

In a complaint filed Tuesday, CDO manager Harding Advisory and its principal Wing Chau allege that the SEC violated their due process and equal protection rights by “shoehorning” a case against them into an administrative proceeding instead of suing in federal court.  The plaintiffs allege that an administrative hearing is wholly unsuitable for a complex case like theirs, especially given the rigid requirement that hearings occur within approximately four months of the matter being initiated.  They  seek to enjoin the proceeding, and force the SEC to sue in federal court instead. The plaintiffs allege that the SEC has refused to explain why their case, as compared to similar CDO cases, was “singled out” to be kept out of court, and argue that the SEC’s must be acting based upon one or more of the following improper motives:
Continue Reading CDO Manager Sues to Enjoin SEC Administrative Case Based on Inadequate Procedural Protections