“Compelling and Meritorious” Constitutionality Challenge of the SEC Dismissed

After a two-year investigation, the SEC issued an order for enforcement proceedings against Laurie A. Bebo, the former CEO of Assisted Living Concepts ("ALC").  The SEC alleged that ALC’s disclosure documents contained false or misleading statements and accused Bebo of securities fraud.

In response, Bebo filed a civil action against the SEC (Bebo v. SEC, 2015 U.S. Dist. LEXIS 25660) and moved for a preliminary injunction challenging the constitutionality of §929P(a) of the Dodd-Frank Act.   Bebo argued that the SEC’s authority in administrative penalty proceedings coupled with the ability to seek penalties in federal court violated the equal protection clause and due process because it gave the SEC the ability to choose the prosecutorial forum and effectively deny a citizens’ seventh amendment right to a jury trial.  The SEC’s ability to choose an administrative forum rather than federal court, also prevented the accused from calling key witnesses beyond subpoenaing power of the SEC ALJ – a procedural due process violation.  Finally, Bebo also argued that SEC administrative proceedings violate Article II, Section III of the Constitution, providing that the executive “take Care that the Laws be faithfully executed” because SEC ALJ’s have multiple levels of protection from being removed by the President.

The Court found Bebo’s claims “compelling and meritorious,” but refused to rule in her favor; the Court stated that Bebo’s exclusive remedies were provided by the Securities Exchange Act.  She must first litigate her claims before the SEC before she is able to appeal to the Seventh Circuit.  And because the Exchange Act provided for review in federal court, she could not be granted relief at this time. 

The district court dismissed Bebo’s case.