WEBVTT - Lynn Tilton Challenges SEC In-House Trial Rulings (Audio)

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<v Speaker 1>You're listening the Bloomberg Law with June Grosso and Michael

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<v Speaker 1>Best in New York and I am Greg's store in Washington.

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<v Speaker 1>When the Securities in Exchange Commission accuses someone of fraud,

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<v Speaker 1>agency lawyers don't have to go before a federal district judge.

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<v Speaker 1>The SEC instead gets to bring the case in house

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<v Speaker 1>through an administrative process under which the agency wins more

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<v Speaker 1>than its cases. Critics say the SEC has an unfair

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<v Speaker 1>advantage at those trials where the rules are very different

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<v Speaker 1>from those in federal court. Among them is Lynn Tilton,

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<v Speaker 1>the Patriarch Partners founder and so called diva of distress,

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<v Speaker 1>who is facing SEC allegations she misled investors about the

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<v Speaker 1>value of risky pools of corporate loans. Her case, which

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<v Speaker 1>could end her career and cost her two hundred million dollars,

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<v Speaker 1>is now awaiting a ruling by an SEC administrative law judge.

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<v Speaker 1>With us to talk about the SEC and its administrative

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<v Speaker 1>complaint process is Robert Hirskovitz, a lawyer at Hurts Hrskovitz,

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<v Speaker 1>PLC who represents securities industry participants in enforcement actions. Rob

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<v Speaker 1>thanks for joining us. Can you just give us a

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<v Speaker 1>quick example or two of how the rules in an

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<v Speaker 1>SEC administrative proceedings differ from what they might be in

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<v Speaker 1>federal court. Sure, and thank you for having me today. UH.

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<v Speaker 1>There's really two areas that I think UM of our

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<v Speaker 1>particular importance. One concernce timing and the second concerns discovery.

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<v Speaker 1>So as it relates to timing. UM. Although the rules

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<v Speaker 1>were loosened somewhat once the Commission decides to bring an

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<v Speaker 1>enforcement action UH. And in the case of Lindtelt, they

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<v Speaker 1>did a five year investigation and then brought an enforcement action.

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<v Speaker 1>Under the old rules, she had but four months to

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<v Speaker 1>defend herself. Under the amended rules, which she was not

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<v Speaker 1>able to avail herself of, it could be as long

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<v Speaker 1>as ten months UM, which to some may sound like

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<v Speaker 1>a reason bole amount of time. But to most people

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<v Speaker 1>and and folks that have to defend people like miss Tilton,

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<v Speaker 1>ten months to pass through what could be millions of documents, UM,

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<v Speaker 1>get your thoughts together on what would be appropriate emotions

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<v Speaker 1>is not a sufficient amount of time. And I think

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<v Speaker 1>most federal judges would likely agree with that UH and

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<v Speaker 1>provide for a more expanded schedule. So, just to be clear,

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<v Speaker 1>the rules have changed, They've gotten a little bit better,

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<v Speaker 1>but not not good enough in your view. I believe

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<v Speaker 1>that's the changes were cosmetic in nature and not substantive. Rob.

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<v Speaker 1>Why is it that the sec can have different rules

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<v Speaker 1>if it brings up proceeding internally with an administrative law

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<v Speaker 1>judge versus if it brings a case in federal court. Well,

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<v Speaker 1>the rules were properly promulgated, so one can't say that

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<v Speaker 1>the rules themselves are inherently illegal. Uh. And there are

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<v Speaker 1>certainly times when it is appropriate for a matter to

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<v Speaker 1>proceeded an administrative setting, But the fear is that these

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<v Speaker 1>rules are being abused. Uh. And the administrative actions are

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<v Speaker 1>being used for matters which are too complex and deserving

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<v Speaker 1>of the protections afforded in federal court. Rob. Are there

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<v Speaker 1>advantages to the administrative law system? Uh? You know people

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<v Speaker 1>often talk about how the a ljs as they're known,

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<v Speaker 1>have some special expertise. Do you see that as as

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<v Speaker 1>a useful thing? Uh? You know, marginal, Um, they do

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<v Speaker 1>have expertise, But the federal judges are, um, you know,

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<v Speaker 1>some of the brightest jurists in the country. Uh. And

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<v Speaker 1>securities claims are not foreign to UH, to federal courts

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<v Speaker 1>and particularly in in in the Manhattan Federal Court. The judges,

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<v Speaker 1>to my mind, are as expert insecurities pause, if not

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<v Speaker 1>more than any a l J. Rob. Miss Tilton has

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<v Speaker 1>been trying to litigate a bunch of issues relating to

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<v Speaker 1>the fairness of the sec S process for a while now,

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<v Speaker 1>and so far hasn't hasn't been able to stop the proceedings.

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<v Speaker 1>What happens if she loses before the a l J.

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<v Speaker 1>What's the procedure for her to challenge the ruling? Well,

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<v Speaker 1>she can, It's essentially, you know, a two step process.

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<v Speaker 1>She can she can file an appeal to the commission

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<v Speaker 1>itself UH, which statistically speaking, UM UH will not get

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<v Speaker 1>her the outcome she she hopes for, assuming she doesn't

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<v Speaker 1>win a trial, And at that point in time, she

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<v Speaker 1>can appeal to UH, to a federal court UM, a

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<v Speaker 1>circuit court and challenge UH. You know what what you'll

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<v Speaker 1>argue to be do process violations at the trial level. Rob.

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<v Speaker 1>We only have about thirty seconds left. But but tell

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<v Speaker 1>me one thing that lind Tilton argued earlier in the

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<v Speaker 1>case was that she should have the right to go

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<v Speaker 1>to federal court before the sec trial went forward. Would

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<v Speaker 1>that be a good move the challenges of that nature

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<v Speaker 1>are are typically rejected, were rejected in her case. The

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<v Speaker 1>bottom line is that there's something called exhaustion the administrative remedies,

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<v Speaker 1>which means put your best foot forward at the trial level,

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<v Speaker 1>and if you exhaust all your remedies there you can

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<v Speaker 1>you can appeal. Above. We want to thank our guest

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<v Speaker 1>Rob Herskovitz, a lawyer who represents securities industries participants in

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<v Speaker 1>enforcement actions by the sec. Thank you so much. That's

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<v Speaker 1>it for this edition of Bloomberg Law. We will be

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<v Speaker 1>back tomorrow thanks to our technical director Reginald Basil and

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