Tag Archives: subpoena

SEC ALJ James Grimes Denies Request To Certify Discovery Ruling for Interlocutory Appeal

We reported several days ago that SEC administrative law judge James Grimes approved a subpoena to the SEC for materials relating to the allegations by former SEC ALJ Lillian McEwen that she was pressured as an ALJ to issue favorable rulings for the SEC staff.  See SEC ALJ James Grimes Issues Important Discovery Order Against SEC.  The SEC’s Office of General Counsel (OGC) was not pleased.  It asked ALJ Grimes to certify an interlocutory appeal to the Commission itself to challenge the discovery order.  On June 1, 2015, ALJ Grimes rejected that request for an interlocutory appeal.  His order can be read here: Order Denying Certification.

The OGC argued “that Mr. Hill’s request is “extraordinary,” and contrary to “the presumption that administrative law judges are unbiased.”  But the OGC did “not assert that Mr. Hill seeks irrelevant information.”  ALJ Grimes noted that “Mr. Hill has a due process right to an unbiased adjudicator and the media article to which he refers raises concerns about that right,” even though “the Office of the General Counsel is correct that administrative law judges are presumed to be unbiased.”  He also observed that “the conversation that is alleged in the media article must have occurred at least ten years ago — if it ever occurred at all,” and “Mr. Hill has done little to tie that alleged conversation to his proceeding.”  That’s not totally correct, since the person who allegedly pressured Ms. McEwen, Brenda Murray, is currently the Chief ALJ for the SEC — what additional connection could Mr. Hill supply without any discovery?

In any event, ALJ Grimes rejected the request because “[t]he initial opposition to Mr. Hill’s request, however, was based only on an argument that the request sought irrelevant information. The opposition made no mention of the arguments the Office of the General Counsel now raises. The Commission, however, has made clear that a litigant ‘may not rely upon . . . arguments’ not previously raised ‘as a basis for urging interlocutory review.’”  Because “the current basis for seeking interlocutory review was not previously raised, the request for certification is denied.”

ALJ Grimes did stay the obligation to comply with the subpoena until June 4, 2105, to allow the OGC “time to determine whether to seek interlocutory review absent certification.”

Straight Arrow

June 2, 2015

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SEC ALJ James Grimes Issues Important Discovery Order Against SEC

In In the Matter of Charles L. Hill, Jr., File No. 3-16383, SEC Administrative Law Judge James E. Grimes issued a subpoena requested by Mr. Hill requiring that the SEC produce materials relevant to Mr. Hill’s objections to using the SEC administrative law forum to pursue the enforcement action against him.  The Division of Enforcement and SEC Office of General Counsel (OGC) objected to the motion seeking the subpoena on what were plainly frivolous grounds.  ALJ Grimes properly rejected those objections and compelled the SEC to provide potentially important materials bearing on the fairness or constitutionality of the SEC’s administrative enforcement process.  See the order here: In re Hill Order Partially Granting Subpoena Request.

Recall that ALJ Grimes previously concluded that he lacked jurisdiction to consider some aspects of Mr. Hill’s constitutional challenge to the proceeding (see SEC ALJ Says He Lacks Authority To Decide Key Constitutional Challenges).  Following the issuance of that order, Mr. Hill commenced an action in federal court in the Northern District of Georgia to seek consideration of the constitutional issues the ALJ said he could not consider.  See Complaint in Hill v. SEC (N.D. Ga.).

The subpoena requested by Mr. Hill and opposed by the SEC covered a number of areas, but only two were addressed in yesterday’s order: (1) seeking documents identifying all SEC enforcement actions brought administratively against persons not subject to SEC regulatory oversight solely for alleged violations of section 14(e) of the Securities Exchange Act of 1934; and (2) seeking documents “that support, or reflect or are related to the allegations made by Lillian McEwen, a former SEC administrative law judge, as reported by the Wall Street Journal on May 6, 2015, that chief administrative law judge Brenda Murray ‘questioned [her] loyalty to the SEC’ as a result of finding too often in favor of defendants and that SEC administrative law judges are expected to work on the assumption that ‘the burden was on the people who were accused to show that they didn’t do what the agency said they did.'”  This second request relates to last week’s blockbuster Wall Street Journal article about the SEC’s possible unfair use of its administrative process to prosecute enforcement actions.  See Fairness Concerns About Proliferation of SEC Administrative Prosecutions Documented by Wall Street Journal.

The objections raised to those aspects of the subpoena request were patently insufficient.  On the first request, the OGC argued the documents sought were “covered by attorney-client privilege and the work-product doctrine.”  Since the request on its face asked only for documents reflecting or reporting on public information (the actual filing of a proceeding), this objection was nonsensical (sanctionable, if the SEC can be sanctioned by its own ALJ).  ALJ Grimes appropriately gave the objection short shrift: “The identity of administrative proceedings is a matter of public record.  As such, documents that identify administrative cases . . . are not protected by the privileges asserted.”

On the second request, the OGC argued “‘[i]t is difficult to perceive how’ the requested documents could be relevant.”  Perhaps so if you are still in elementary school; but if you are a practicing lawyer, the relevance is obvious, since the information requested goes directly to a potential systemic bias imbued in SEC ALJs that would flout due process.  In response to the SEC’s perception problems, ALJ Grimes said no more than “I disagree,” and ordered production of any responsive materials.

The SEC OGC and Enforcement Division do themselves and the Commission no favors by making knee-jerk oppositions to discovery requests by respondents in administrative proceedings.  The very fact that the subpoenas must be approved by the ALJ before being served is a significant disadvantage for respondents as compared to federal court defendants (who can issue subpoenas to third parties, or make document requests of parties, without court approval).  It makes it worse that the SEC will routinely object to any attempt of a respondent to gather evidence through issuance of a subpoena.  It is obviously beyond the pale to do so on purely frivolous grounds.

Kudos to ALJ Grimes for his quick rejection of the SEC staff’s obstructive efforts.  The materials sought could have an important bearing on consideration of constitutional issues raised by Mr. Hill.  And, after the statements made by a former SEC ALJ, development of the record of possible misconduct relating to attempts to influence SEC ALJs to favor the SEC staff in administrative proceedings is essential.  Frankly, it is sad (but, unfortunately, not surprising) that in light of the charge made, the Commission itself has not already commenced an inquiry to assure that its own administrative proceedings have not been tainted by such bias.

Straight Arrow

May 22, 2015

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