By Mark S. Nelson, J.D.
The federal judge who has heard most of the recent challenges to the SEC’s in-house courts has denied the agency’s request to stay the preliminary injunction she previously issued halting an administrative proceeding against Laurence Gray and the advisory firm he has led since its founding. The SEC appealed that order to the Eleventh Circuit, but the district court’s latest order still gives the SEC options that include using its in-house courts (Gray Financial Group, Inc. v. SEC, September 24, 2015, May, L.).
Seventh Circuit under microscope. Judge May initially granted Gray Financial a preliminary injunction in August. More recently, the SEC had asked her to stay that injunction while the Eleventh Circuit hears the agency’s appeal. The August injunction was based on Judge May’s conclusion that Gray Financial was likely to win its claim that the administrative law judge in the SEC proceeding was not appointed in compliance with the U.S. Constitution.
As for the SEC’s bid to stay the preliminary injunction, Judge May noted her prior orders in Gray Financial and in two other ALJ cases before her worked against the SEC. But the judge also focused on the Seventh Circuit’s Bebo decision, which held that a Wisconsin district court judge lacked jurisdiction to hear Laurie Bebo’s similar claims about the SEC’s enforcement regime.
According to Judge May, Bebo is distinguishable because of its inapt reliance on the Supreme Court’s Elgin opinion, and because Bebo was already participating in the administrative proceeding. By contrast, Gray Financial sued the SEC before the agency brought administrative charges. The Seventh Circuit’s opinion had explained that some of the SEC ALJ cases looked instead to the Supreme Court’s Free Enterprise decision.
Moreover, Gray Financial could be harmed if it was forced to submit to a likely unconstitutional administrative hearing. Judge May also noted that the Eleventh Circuit refused the SEC’s bid to stay her order halting an administrative proceeding in another case disputing the SEC’s in-house courts.
SEC has options. Yet Judge May’s latest order against the SEC bears close reading for what it does not bar the agency from doing. The judge said the Commission can still preside over the Gray Financial matter itself, or it can appoint its own ALJ, a solution she has previously urged in her several opinions dealing with the SEC’s ALJs. The SEC also could bring its case in a federal district court.
Judge May’s order effectively closed Gray Financial’s district court case while the SEC appeals. But the judge told the parties to give her an update on the case after the Eleventh Circuit issues its opinion.
The case is No. 15-cv-492.