(Reuters) – A U.S. judge on Tuesday rejected New York financier Lynn Tilton’s bid to block the U.S. Securities and Exchange Commission from trying her before an administrative law judge for defrauding investors.
U.S. District Judge Ronnie Abrams in Manhattan dismissed Tilton’s lawsuit against the SEC, saying the head of Patriarch Partners lacked power to stop the agency from pursuing its case against her and her private equity firm in its in-house court.
The judge said Congress designated the SEC and then a federal appeals court as the “exclusive avenue of review” of an administrative law judge’s decision, and that she lacked jurisdiction to address Tilton’s constitutional claims.
Patriarch, which with Tilton faces an Oct. 13 trial date, said in a statement that it was disappointed by the decision to review its “serious constitutional claims.”
“Judge Abrams’ decision departs from recent decisions by other federal judges and, accordingly, we intend to seek expedited appellate review,” Patriarch said.
The SEC did not immediately respond to a request for comment.
Following a five-year investigation, the SEC charged Tilton and Patriarch in March, saying they hid the poor performance of assets underlying their three “Zohar” collateralized loan obligation funds, which had raised more than $2.5 billion.
The SEC said Tilton’s firms collected almost $200 million of fees and other payments to which they were not entitled.
Tilton and Patriarch deny wrongdoing, saying they consistently disclosed their investment strategy from the funds’ inception. She sued to block the administrative proceeding, calling it unconstitutional.
Her case was the latest to challenge the SEC’s use of administrative proceedings, which have increased since the 2010 Dodd-Frank Wall Street law provided the agency with the power to bring more cases in-house.
SEC administrative law judges preside over the cases, which are typically fast-tracked and lack some protections defendants typically enjoy in more-traditional court settings.
Defense lawyers say the process is unfair, pointing to statistics showing the SEC last year won 100 percent of administrative cases before its own judges.
Earlier this month, a federal judge in Georgia issued an injunction on constitutional grounds to block an administrative trial from going forward against Charles Hill, a real estate developer accused of insider trading.
The case is Tilton v. Securities and Exchange Commission, U.S. District Court, Southern District of New York, No. 15-02472. (Reporting by Nate Raymond in New York; Editing by Lisa Von Ahn)