WASHINGTON, June 5 (Reuters) - A group of investment managers and their firm have called into question the impartiality of a U.S. Securities and Exchange Commission judge who oversaw a case against them, leading the regulator to ask the judge if their concern is valid.
The SEC on Thursday asked Administrative Law Judge Cameron Elliot to file an affidavit as to whether he ever felt pressure to rule in the commission’s favor.
An SEC spokeswoman said Elliot declined to answer media questions about the request.
Timbervest LLC, a Georgia-based investment firm, and its executives, have appealed a decision by Elliot made last August finding them liable for fraud. The commissioners plan to hear the appeal on Monday.
The SEC’s enforcement division is also appealing part of the case, after Elliot ruled that the executives could not be barred from the industry because due to the five-year statute of limitations.
The unusual request came amid growing discontent among targets of SEC in-house administrative proceedings, which lack procedural protections available to defendants in federal courts. In the last year, several lawsuits have challenged the constitutionality of the venue and whether defendants should be allowed to fight the charges in a federal court.
In the Timbervest case, Elliot found that the firm violated federal securities laws and committed fraud by concealing various fees and potential conflicts of interest, and that officials including Chief Executive Joel Barth Shapiro aided and abetted those violations.
But the defendants on May 20 filed papers questioning whether the “administrative forum lacks impartiality.”
Stephen Councill, a partner at Rogers & Hardin representing the firm, told Reuters that as of the August decision by Elliot against his client, the judge’s track record of ruling in favor of the SEC was 51-0.
Moreover, a former SEC administrative law judge was recently quoted in another media outlet saying that when she worked at the SEC, she felt pressure to rule against defendants.
In light of this, the SEC said it was “inviting” Elliot to address in a sealed affidavit “whether he has had any communications or experiencing any pressure” or is aware of “any other matter pertaining to allegations of bias or partiality” involving administrative law judges.
Councill said he thinks the SEC has taken an odd path toward trying to get to the bottom of the bias allegations.
“Lewis Carroll could not have told a more bizarre tale,” he said. (Reporting by Jonathan Stempel in New York and Sarah N. Lynch in Washington; Editing by David Gregorio)