1 00:00:03,480 --> 00:00:07,560 Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every 2 00:00:07,640 --> 00:00:10,440 Speaker 1: day we bring you insight and analysis into the most 3 00:00:10,480 --> 00:00:13,399 Speaker 1: important legal news of the day. You can find more 4 00:00:13,480 --> 00:00:18,040 Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud 5 00:00:18,320 --> 00:00:23,040 Speaker 1: and on Bloomberg dot com slash podcasts. Investment advisor Raymond 6 00:00:23,120 --> 00:00:26,560 Speaker 1: Luccia beat the Securities and Exchange Commission at the Supreme 7 00:00:26,640 --> 00:00:31,400 Speaker 1: Court over his allegedly misleading buckets of money retirement presentations. 8 00:00:31,840 --> 00:00:34,040 Speaker 1: But in the latest round of his legal battles with 9 00:00:34,080 --> 00:00:39,120 Speaker 1: the agency, the SEC beat Luccia. It all revolves around 10 00:00:39,120 --> 00:00:42,600 Speaker 1: the agency's in house judges, but it gets a little confusing, 11 00:00:42,720 --> 00:00:45,520 Speaker 1: and here to sort it all out is Peter Hanning, 12 00:00:45,600 --> 00:00:48,680 Speaker 1: professor at Wayne State University Law School and a former 13 00:00:48,760 --> 00:00:53,120 Speaker 1: senior attorney at the SEC. Peter start by telling us 14 00:00:53,159 --> 00:00:57,240 Speaker 1: about the Supreme Court's ruling last year. Well, what the 15 00:00:57,320 --> 00:01:03,920 Speaker 1: court ruled was that the SEC's administrative law judges had 16 00:01:03,960 --> 00:01:07,960 Speaker 1: to be appointed by the full Commission. That they were 17 00:01:08,440 --> 00:01:12,480 Speaker 1: under the Constitution, they were what's called an inferior officer. 18 00:01:13,040 --> 00:01:17,000 Speaker 1: That doesn't mean they're not good, but they have to 19 00:01:17,000 --> 00:01:20,720 Speaker 1: be appointed by someone who is the head of a 20 00:01:20,800 --> 00:01:24,600 Speaker 1: department and so the Supreme Court said, and in fact, 21 00:01:24,720 --> 00:01:28,040 Speaker 1: the Trump administration had come into the Supreme Court and 22 00:01:28,080 --> 00:01:31,600 Speaker 1: said the way they were appointed was incorrect, that it 23 00:01:31,640 --> 00:01:35,480 Speaker 1: has to be the full SEC that appoints them. So 24 00:01:35,880 --> 00:01:38,880 Speaker 1: what the SEC did when the case was in front 25 00:01:38,920 --> 00:01:41,760 Speaker 1: of the Supreme Court is they went back and essentially 26 00:01:41,800 --> 00:01:46,720 Speaker 1: reappointed all six of the Administrative law judges so that 27 00:01:46,760 --> 00:01:51,160 Speaker 1: they had the proper appointment under the Constitution. So at 28 00:01:51,200 --> 00:01:54,440 Speaker 1: that point the SEC could have dropped the case, but 29 00:01:54,520 --> 00:02:00,880 Speaker 1: it chose not to. How egregious were Lucia's alleged misstatements, Well, 30 00:02:01,160 --> 00:02:04,320 Speaker 1: I the SEC's point is, you know, it's a very 31 00:02:04,400 --> 00:02:09,919 Speaker 1: evocative name, buckets of money, um, and that they said 32 00:02:09,960 --> 00:02:13,720 Speaker 1: that there was a power point presentation that he would 33 00:02:13,800 --> 00:02:19,520 Speaker 1: provide in the seminars that was misleading, that in fact, 34 00:02:19,720 --> 00:02:26,000 Speaker 1: it did not really reflect how the investments were being operated. 35 00:02:26,240 --> 00:02:28,640 Speaker 1: So the SEC went after him for a violation of 36 00:02:28,680 --> 00:02:32,000 Speaker 1: Will t B five, which is making a misstatement or 37 00:02:32,040 --> 00:02:36,840 Speaker 1: omission to investors. And so the case then went to 38 00:02:37,400 --> 00:02:40,720 Speaker 1: a different Administrative law judge. It couldn't go in front 39 00:02:40,760 --> 00:02:42,600 Speaker 1: of the one who had originally heard the case, so 40 00:02:43,000 --> 00:02:46,840 Speaker 1: they sent it to a different judge and that judge 41 00:02:47,240 --> 00:02:50,040 Speaker 1: is now going to be hearing the case. But Mr 42 00:02:50,120 --> 00:02:55,120 Speaker 1: Lucia had challenged that trying to stop the SEC's administrative 43 00:02:55,200 --> 00:02:59,920 Speaker 1: law process from going forward. So was his his problem 44 00:03:00,120 --> 00:03:02,600 Speaker 1: was basically the same thing that he didn't want an 45 00:03:02,680 --> 00:03:07,840 Speaker 1: SEC administrative judge ruling on his case. Well, that's right. 46 00:03:07,880 --> 00:03:13,080 Speaker 1: I mean, the defense bard does not like administrative proceedings 47 00:03:13,200 --> 00:03:16,919 Speaker 1: because they go on a much shorter timetable, and unlike 48 00:03:16,960 --> 00:03:20,359 Speaker 1: a case filed in a federal district court, you don't 49 00:03:20,440 --> 00:03:23,880 Speaker 1: have discovery, or at least not discovery to the same 50 00:03:23,960 --> 00:03:26,840 Speaker 1: extent that you would in a case in a federal 51 00:03:26,880 --> 00:03:31,799 Speaker 1: district court. So that has always been a consistent complaint 52 00:03:32,120 --> 00:03:37,400 Speaker 1: of defense lawyers that we're getting essentially, the SEC has 53 00:03:37,440 --> 00:03:40,000 Speaker 1: a home field advantage um if you want to use 54 00:03:40,040 --> 00:03:43,760 Speaker 1: a football analogy, and that they get too much of 55 00:03:43,800 --> 00:03:47,800 Speaker 1: a benefit by going down the administrative road. And so 56 00:03:48,400 --> 00:03:51,080 Speaker 1: I think he wanted the SEC to file its case 57 00:03:51,320 --> 00:03:53,880 Speaker 1: in a federal district court so that he could get 58 00:03:53,880 --> 00:03:57,480 Speaker 1: in front of a jury, whereas in an SEC administrative 59 00:03:57,480 --> 00:04:00,200 Speaker 1: proceeding you're in front of one judge who is in 60 00:04:00,280 --> 00:04:04,640 Speaker 1: fact appointed by the SEC. So what did the district 61 00:04:04,640 --> 00:04:09,440 Speaker 1: courts say well, the district court said that there's a 62 00:04:09,560 --> 00:04:14,400 Speaker 1: very clear process for challenging the SEC's decision then that 63 00:04:14,680 --> 00:04:18,000 Speaker 1: is to go into the federal Court of Appeals. That 64 00:04:18,080 --> 00:04:21,440 Speaker 1: you can't go to the federal district court. And so 65 00:04:21,600 --> 00:04:28,200 Speaker 1: the district judge in San Diego said, don't come here. Um, 66 00:04:28,320 --> 00:04:32,000 Speaker 1: if you want to stop this, fine, go into the 67 00:04:32,040 --> 00:04:35,760 Speaker 1: circuit court or wait until the SEC decides your case. 68 00:04:36,120 --> 00:04:39,520 Speaker 1: Maybe they'll decide it in your favor, but um, this 69 00:04:39,680 --> 00:04:41,520 Speaker 1: is not the right place for you to come to. 70 00:04:41,520 --> 00:04:44,720 Speaker 1: The federal district court can't hear the case at this 71 00:04:44,760 --> 00:04:47,680 Speaker 1: point in time, that it has to go through the 72 00:04:47,800 --> 00:04:50,880 Speaker 1: SEC process and then you go to one of the 73 00:04:50,920 --> 00:04:56,600 Speaker 1: courts of appeals. Do the circuits agree on that to 74 00:04:56,680 --> 00:04:59,880 Speaker 1: this point they are in agreement that if you want 75 00:04:59,880 --> 00:05:03,680 Speaker 1: to challenge an SEC decision, you have to go to 76 00:05:03,720 --> 00:05:06,880 Speaker 1: the Court of Appeals. You can't run into the district 77 00:05:06,880 --> 00:05:10,600 Speaker 1: court saying and what Lucia asked for was an injunction 78 00:05:11,040 --> 00:05:15,360 Speaker 1: stopping the SEC. And the district judge said, you got 79 00:05:15,400 --> 00:05:18,760 Speaker 1: the wrong court. Uh, you're not in the right place. 80 00:05:19,279 --> 00:05:23,080 Speaker 1: Wait until the process plays out, and then if you 81 00:05:23,120 --> 00:05:26,880 Speaker 1: want to challenge the decision, go ahead and challenge it. So, Peter, 82 00:05:27,240 --> 00:05:30,760 Speaker 1: you worked at the SEC. Is it likely that there 83 00:05:30,760 --> 00:05:35,560 Speaker 1: are some settlement negotiations going on. I would not be 84 00:05:35,680 --> 00:05:38,960 Speaker 1: surprised if there were. This has become now for Mr 85 00:05:39,040 --> 00:05:44,400 Speaker 1: Luccia a very expensive process, and going through another set 86 00:05:44,400 --> 00:05:48,599 Speaker 1: of hearings is going to just drive up his attorney's fees. 87 00:05:48,760 --> 00:05:53,919 Speaker 1: So if he can work out something favorable with the SEC, 88 00:05:54,040 --> 00:05:56,880 Speaker 1: it would not surprise me if he could. But you know, 89 00:05:56,920 --> 00:06:01,000 Speaker 1: I get the feeling the SEC may have drawn a 90 00:06:01,160 --> 00:06:04,160 Speaker 1: line in the sand and they may not be all 91 00:06:04,160 --> 00:06:07,880 Speaker 1: that amenable to settling, and so they may want to 92 00:06:07,880 --> 00:06:10,360 Speaker 1: see this case go back in front of the administrative 93 00:06:10,440 --> 00:06:12,680 Speaker 1: judge and then see if they can win it in 94 00:06:12,720 --> 00:06:14,719 Speaker 1: the SEC. See if they can win it in the 95 00:06:14,760 --> 00:06:18,960 Speaker 1: court of appeals. Because the I want to also get 96 00:06:18,960 --> 00:06:25,600 Speaker 1: your insight into the fine. He was fined three dollars 97 00:06:25,640 --> 00:06:28,760 Speaker 1: and barred for life from working as a financial advisor 98 00:06:29,160 --> 00:06:35,400 Speaker 1: in by that SEC judge. That sounds a little harsh, certainly. 99 00:06:35,440 --> 00:06:39,160 Speaker 1: That is um. You know that basically you've taken away 100 00:06:40,040 --> 00:06:44,560 Speaker 1: his means of earning a living um. But I think 101 00:06:44,640 --> 00:06:49,120 Speaker 1: the finding by the administrative judge was that the misstatements 102 00:06:49,160 --> 00:06:54,120 Speaker 1: that were made in the presentations were so bad that 103 00:06:54,120 --> 00:06:57,679 Speaker 1: that's a very heavy penalty, and I would be surprised 104 00:06:58,200 --> 00:07:01,120 Speaker 1: if the SEC came back with this kind of penalties. 105 00:07:01,560 --> 00:07:03,800 Speaker 1: It wouldn't surprise me if they maybe try to knock 106 00:07:03,880 --> 00:07:06,680 Speaker 1: him out of being an investment advisor for a year 107 00:07:06,760 --> 00:07:10,920 Speaker 1: or two. But those are very very heavy penalties, and 108 00:07:11,040 --> 00:07:14,720 Speaker 1: it would surprise me if the SEC went down that 109 00:07:14,800 --> 00:07:18,280 Speaker 1: road again, and if the commission the full five commissioners, 110 00:07:18,640 --> 00:07:21,440 Speaker 1: ended up going down that road again to about a 111 00:07:21,440 --> 00:07:23,760 Speaker 1: minute here, So what can he do now? He can 112 00:07:23,800 --> 00:07:28,400 Speaker 1: either go forward with the SEC hearing before an administrative judge, 113 00:07:28,520 --> 00:07:30,920 Speaker 1: or can he appeal this ruling by the district court. 114 00:07:31,800 --> 00:07:34,600 Speaker 1: Uh district judge said, you're out of this court. You're 115 00:07:34,640 --> 00:07:38,960 Speaker 1: in the wrong court. Um, So I think Mr Lucci 116 00:07:39,120 --> 00:07:41,480 Speaker 1: is going to have to fight this out in the 117 00:07:41,520 --> 00:07:45,560 Speaker 1: administrative proceeding and then hope maybe he can get a 118 00:07:45,600 --> 00:07:48,520 Speaker 1: favorable hearing in a court of appeals, either in the 119 00:07:48,520 --> 00:07:52,320 Speaker 1: District of Columbia or wherever the case is being pursued. 120 00:07:52,600 --> 00:07:54,800 Speaker 1: All right, thanks so much, Peter for your insights. That's 121 00:07:54,840 --> 00:07:58,480 Speaker 1: Peter Hending, a professor at Wayne State University Law School. 122 00:07:58,520 --> 00:08:03,440 Speaker 1: The saga of Raymond Luci continues. Thanks for listening to 123 00:08:03,440 --> 00:08:06,760 Speaker 1: the Bloomberg Law Podcast. You can subscribe and listen to 124 00:08:06,800 --> 00:08:10,560 Speaker 1: the show on Apple Podcasts, SoundCloud, and on bloomberg dot 125 00:08:10,560 --> 00:08:15,080 Speaker 1: com slash podcast. I'm June Brosso. This is Bloomberg