- U.S. appeals court dismissed Tilton’s earlier challenge
- Tilton claims SEC in-house hearings violate the Constitution
Patriarch Partners and Lynn Tilton claim in a new lawsuit that U.S. Securities and Exchange Commission hearing rules violate her constitutional rights as the private-equity fund founder pursues her fight with regulators having lost an earlier challenge.
Tilton and Patriarch sued the SEC Friday, claiming the speed of agency hearings and rules limiting defendants from gathering evidence are unfair, particularly in complex cases. New SEC rules improving the process were timed to ensure they wouldn’t apply to her and cases of others who have challenged SEC procedures in court, Tilton and the fund said.
In June, a federal appeals court in Manhattan ruled against Tilton’s argument that the way SEC hearing officers are appointed violates the Constitution. The new lawsuit comes a day after Tilton urged the U.S. Supreme court to consider the issue. The Supreme Court hasn’t ruled on the request.
The new rules, which extend deadlines and allow some defendants to ask for prehearing testimony, are limited to cases the SEC or a court put on hold, or where a prehearing conference hasn’t been held before Sept. 27, the date on which the rules take effect, according to the complaint.
"The commission carved out an exception for respondents such as plaintiff Lynn Tilton who had the temerity to mount facial challenges to the constitutionality of the SEC’s internal administrative tribunals," Patriarch and Tilton said in the complaint.
SEC spokeswoman Judith Burns declined to comment on the case.
The SEC began its administrative proceeding against Tilton in 2015, claiming she overcharged investors on $2.5 billion in collateralized loan obligations. She sued in federal court in an unsuccessful attempt to block the SEC’s in-house case, one of several agency defendants who challenged the way hearings are conducted. Critics claimed the SEC proceedings lack the necessary safeguards that apply in federal court.
The case is Tilton v. Securities and Exchange Commission, 16-cv-07048, U.S. District Court, Southern District of New York (Manhattan).