(Adds comment from Bebo lawyer)
By Jonathan Stempel
Aug 24 (Reuters) - A federal appeals court on Monday handed the U.S. Securities and Exchange Commission a victory in its use of in-house enforcement proceedings, rejecting a challenge by a former chief executive of Assisted Living Concepts Inc.
The 7th U.S. Circuit Court of Appeals in Chicago agreed with U.S. District Judge Rudolph Randa in Milwaukee that it lacked jurisdiction to hear former CEO Laurie Bebo’s constitutional challenge to the SEC administrative case against her until the regulator’s proceedings have concluded.
Circuit Judge David Hamilton said it was “fairly discernible” that Congress intended defendants like Bebo to “proceed exclusively through the statutory review scheme” rather than have federal courts hear their cases from the outset.
Kate Maternowski, a lawyer for Bebo, said her client will continue pursuing her constitutional claims. SEC spokesman John Nester declined to comment.
Monday’s decision is at odds with rulings by federal judges Richard Berman in Manhattan and Leigh Martin May in Atlanta.
They have halted SEC administrative proceedings on the grounds that the appointment of judges who handle them is likely unconstitutional.
The SEC has pursued more enforcement cases in-house rather than in federal court, using authority it obtained through the 2010 Dodd-Frank law.
Critics say this deprives defendants of protections they enjoy in federal court, such as the ability to take depositions, and makes it easier for the SEC to win.
The SEC charged Bebo with falsifying documents and making false representations to auditors while at Assisted Living, a Menomonee Falls, Wisconsin-based operator of assisted living centers, prior to her May 2012 termination.
TPG Capital, a private equity firm, bought Assisted Living in 2013.
Bebo said the Dodd-Frank provision letting the SEC pursue more enforcement cases in-house deprived her of equal protection and due process rights by giving the regulator “unguided” authority to choose the forum.
She also said the appointment of SEC administrative law judges was unconstitutional because they enjoyed job protections that could make it impossible to remove them, even for cause.
One SEC judge, Cameron Elliot, heard arguments in Bebo’s case in June and has yet to rule.
Hamilton, the appeals judge, said it is appropriate to let that case play out.
Bebo “does not need to risk incurring a sanction voluntarily just to bring her constitutional challenges,” Hamilton wrote. “After the pending enforcement action has run its course, she can raise her objections in a circuit court of appeals.”
The case is Bebo v SEC, 7th U.S. Circuit Court of Appeals, No. 15-1511. (Reporting by Jonathan Stempel in New York; Editing by Jeffrey Benkoe and Steve Orlofsky)