Thursday, June 11, 2015

Enjoined by District Court, SEC Cancels Start of Administrative Proceeding

By John Filar Atwood

The day after the U.S. District Court for the Northern District of Georgia enjoined the SEC from conducting an administrative proceeding against Charles L. Hill, Jr., the Commission cancelled the hearing scheduled for June 15. The hearing, which was to be held before an administrative law judge (ALJ), would have begun the administrative proceeding against Hill.

The notice follows the court’s decision that Hill was likely to succeed on the merits of his claim that the designation of the administrative law judge presiding over his insider trading case violated the Appointments Clause. As previously reported, the administrative proceeding was enjoined to give the court sufficient time to consider the constitutional arguments.

Allegations. Hill was a friend of a friend of the chief operating officer of Radiant Systems, Inc. The SEC claims that he purchased over 100,000 Radiant shares between June 1 and July 8, 2011, shortly before Radiant announced a tender offer. The day after the announcement, Hill sold his shares for a profit of $744,000. The Commission alleged that Hill traded on inside information. Hill is suing in federal court, seeking a declarative judgment that the SEC administrative proceeding is unconstitutional.

Likely to succeed. The court determined that Hill was likely to succeed on the merits of his claim that the ALJ’s appointment violates Article II’s Appointments Clause because the law judge was not appointed by the president, a court, or a department head. The court found that the ALJ was an inferior officer, triggering the Appointments Clause, rather than a “mere employee” as the SEC had claimed.

The court acknowledged that its decision may appear to be unduly technical, but it stressed the importance of the Appointments Clause to the Constitution’s separation of powers framework. The Appointments Clause protects the executive from congressional encroachment and may not be waived, even by the executive.