SEC ALJ in Bebo Case Refuses To Consider Constitutional Challenge and Denies More Time To Prepare Defense

SEC Administrative Law Judge Cameron Elliot continued his run of decisions against respondent Laurie Bebo with two orders issued April 7, 2015.  The approach reflected in these decisions reinforces the view that his court is not serving as a fair forum for Ms. Bebo.  See Bebo Case Continues To Show Why SEC Administrative Proceeding Home Advantage Is Unfair.

In one ruling, he refused to consider major motion papers filed on behalf of Ms. Bebo challenging the constitutionality of the administrative proceeding because he decided that should be considered a “motion for summary disposition,” and, as such, was filed out of time, and would not be considered.  See Order on Respondent’s Motion for Declaratory and Injunctive Relief for Constitutional Violations and Request for Leave To File Overlength Motion

In the second, he rejected a request for an extension of time before the administrative trial commences (it is scheduled to start in fewer than two weeks), holding that “the  proceeding is neither unusually complex nor is the investigative file particularly large, and granting the requested relief would jeopardize my ability to complete the proceeding under the timeline” set by the SEC in its order initiating the proceeding.  See Order Denying Renewed Motion for Relief from Rule 360(a)(2) Presumptive Hearing Schedule.

These orders ooze parochialism and tunnel vision, again showing the administrative forum is no place for enforcement actions of this magnitude.

The refusal to consider the constitutional issue on a procedural ground seems bizarre.  If Mr. Elliot were on the basketball court, he would be one of those players desperately trying to avoid taking the clutch shot.  Mr. Elliot knows this is a key issue of some notoriety, and knows that the world is watching how he conducts his proceeding, but insisted on focusing on minutiae.  He certainly had the discretion to consider the motion.  Declining to do so using the crutch of a procedural time-limit, and with the lame statement that the “arguments may be renewed post-hearing,” shows the world that he is just not ready for prime time.  He must know that if there is a constitutional violation, he exacerbates it by requiring that the respondent go through the trial before even considering the issue.

Mr. Elliot showed his true colors, however, by trying to have it both ways, when he opted to comment on one of the points in Ms. Bebo’s submission even while declining to consider it.  He wrote a long footnote arguing that one of the (minor) grounds for considering SEC administrative law judges to be “inferior officers” for constitutional purposes — because they “can issue final decisions under certain circumstances” — is wrong, because even if the ALJ’s order does not get reviewed the SEC must issue an order that makes it final.  Whether he’s right or wrong on this point, it is peculiar that he should choose to give an advisory view on this lesser issue while declining to consider the broader constitutional arguments.

A quality judge would approach the constitutionality issue head on, knowing he will have to do so eventually anyway, and by doing so at the outset, substantial resources could be conserved.  Indeed, any judge worth his salt would look forward to doing so.  But, of course, we know (and so does he) that Mr. Elliot will not give serious consideration to the arguments (that is above his pay-grade), and he is conflicted on the issue to boot (his own job could be at stake).  That’s one reason why the Wisconsin federal court presented with these arguments ruled the wrong way when it found no jurisdiction to hear the challenge.  See Court Dismisses “Compelling and Meritorious” Bebo Constitutional Claims Solely on Jurisdictional Grounds.

The ruling declining to delay the commencement of the trial to allow the defense more time to prepare is yet another example why enforcement proceedings of this type simply don’t belong in the administrative forum.  Mr. Elliot was more focused on meeting the SEC-mandated schedule than whether Ms. Bebo can adequately prepare to defend a case that will determine her future ability to be an executive or director in a public company.  This is a major, life-changing, proceeding for Ms. Bebo, but Mr. Elliot gives no hint that he recognizes that.  His reason for denying the motion focused on administrative precedent that showed he had the discretion to reject it (but not how he should exercise that discretion), and his deferral to the SEC (“in setting the time frame for the case, the Commission has already considered the complexity of the case”).  A real judge would balance the prejudice to either side from granting the relief — which Mr. Elliot strangely does need even address — and almost certainly conclude that in light of the stakes for Ms. Bebo, the much longer period the SEC staff has had to learn the record and prepare its case, and the negligible prejudice to the SEC from a delay, a modest extension was warranted.

Make no mistake.  Cameron Elliot is a homer, which does not bode well for Ms. Bebo.

Straight Arrow

April 8, 2015

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One thought on “SEC ALJ in Bebo Case Refuses To Consider Constitutional Challenge and Denies More Time To Prepare Defense

  1. Pingback: Some SEC Administrative Law Judges Are Thoughtful and Even Judicious | Securities Diary

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