You're listening the Bloomberg Law with June Grosso and Michael Best in New York and I am Greg's store in Washington. When the Securities in Exchange Commission accuses someone of fraud, agency lawyers don't have to go before a federal district judge. The SEC instead gets to bring the case in house through an administrative process under which the agency wins more than its cases. Critics say the SEC has an unfair advantage at those trials where the rules are very different
from those in federal court. Among them is Lynn Tilton, the Patriarch Partners founder and so called diva of distress, who is facing SEC allegations she misled investors about the value of risky pools of corporate loans. Her case, which could end her career and cost her two hundred million dollars, is now awaiting a ruling by an SEC administrative law judge. With us to talk about the SEC and its administrative complaint process is Robert Hirskovitz, a lawyer at Hurts Hrskovitz,
PLC who represents securities industry participants in enforcement actions. Rob thanks for joining us. Can you just give us a quick example or two of how the rules in an SEC administrative proceedings differ from what they might be in federal court. Sure, and thank you for having me today. UH. There's really two areas that I think UM of our particular importance. One concernce timing and the second concerns discovery.
So as it relates to timing. UM. Although the rules were loosened somewhat once the Commission decides to bring an enforcement action UH. And in the case of Lindtelt, they did a five year investigation and then brought an enforcement action. Under the old rules, she had but four months to defend herself. Under the amended rules, which she was not able to avail herself of, it could be as long as ten months UM, which to some may sound like
a reason bole amount of time. But to most people and and folks that have to defend people like miss Tilton, ten months to pass through what could be millions of documents, UM, get your thoughts together on what would be appropriate emotions is not a sufficient amount of time. And I think most federal judges would likely agree with that UH and provide for a more expanded schedule. So, just to be clear, the rules have changed, They've gotten a little bit better,
but not not good enough in your view. I believe that's the changes were cosmetic in nature and not substantive. Rob. Why is it that the sec can have different rules if it brings up proceeding internally with an administrative law judge versus if it brings a case in federal court. Well, the rules were properly promulgated, so one can't say that
the rules themselves are inherently illegal. Uh. And there are certainly times when it is appropriate for a matter to proceeded an administrative setting, But the fear is that these rules are being abused. Uh. And the administrative actions are being used for matters which are too complex and deserving of the protections afforded in federal court. Rob. Are there advantages to the administrative law system? Uh? You know people often talk about how the a ljs as they're known,
have some special expertise. Do you see that as as a useful thing? Uh? You know, marginal, Um, they do have expertise, But the federal judges are, um, you know, some of the brightest jurists in the country. Uh. And securities claims are not foreign to UH, to federal courts and particularly in in in the Manhattan Federal Court. The judges, to my mind, are as expert insecurities pause, if not
more than any a l J. Rob. Miss Tilton has been trying to litigate a bunch of issues relating to the fairness of the sec S process for a while now, and so far hasn't hasn't been able to stop the proceedings. What happens if she loses before the a l J. What's the procedure for her to challenge the ruling? Well, she can, It's essentially, you know, a two step process.
She can she can file an appeal to the commission itself UH, which statistically speaking, UM UH will not get her the outcome she she hopes for, assuming she doesn't win a trial, And at that point in time, she can appeal to UH, to a federal court UM, a circuit court and challenge UH. You know what what you'll argue to be do process violations at the trial level. Rob.
We only have about thirty seconds left. But but tell me one thing that lind Tilton argued earlier in the case was that she should have the right to go to federal court before the sec trial went forward. Would that be a good move the challenges of that nature
are are typically rejected, were rejected in her case. The bottom line is that there's something called exhaustion the administrative remedies, which means put your best foot forward at the trial level, and if you exhaust all your remedies there you can you can appeal. Above. We want to thank our guest Rob Herskovitz, a lawyer who represents securities industries participants in enforcement actions by the sec. Thank you so much. That's
it for this edition of Bloomberg Law. We will be back tomorrow thanks to our technical director Reginald Basil and our producer David Sutraman. You can find more legal news at Bloomberg Law dot com and Bloomberg being a dot com, plus an invaluable website for the legal community at Big Law Business dot com. Coming up on Bloomberg Radio bloom Markets with Carol Masser and Corey Johnson. Carol, very quickly, what are you talking about today? Very quickly, Internet of Things.
You've got an author of a new book. Back to you, Greg, Thanks so much, Carol. That's coming up. This is Bloomberg