Securities Litigation

On January 29, the Commission dismissed its insider-trading suit against Canadian analyst Jordan Peixoto in connection with his purchase of puts on the stock of Herbalife in advance of a negative hedge fund presentation on the company. The SEC instituted proceedings against Peixoto last September in its administrative forum - something it could not have done before Dodd-Frank against the non-registered Canadian-citizen research analyst. In the Matter of Jordan Peixoto, AP File No. 3-16184 (SEC Sept. 30, 2014)(OIP here) Dodd-Frank reforms expanded the availability of the Commission's administrative forum in enforcement actions against non-registered respondents. Soon after the SEC instituted its action, however, Peixoto responded with a counter-suit in the United States District Court for the Southern District of New York, challenging the constitutionality of his administrative prosecution under the Appointment Clause, Due Process and Equal Protection clauses as well. I wrote last October about Peixoto's suit as then the latest in a series of challenges to the SEC's administrative forum, here. The Commission last week granted Enforcement's motion to dismiss the administrative action, because two key witnesses (living in New York when the OIP issued) had returned to their native Poland and informed the SEC they would assert their Fifth Amendment rights if compelled to testify. The Commission's Order is here. Continuing Challenges Ironically, earlier in the month the CEO of publicly-traded Assisted Living Concepts, Inc. filed suit alleging the SEC's use of the administrative forum is unconstitutional in her case because she cannot compel the testimony of most of the company's board members, Canadian citizens. Bebo v. SEC, No. 15-cv-00003 (USDC - EDWI, filed Jan. 2, 2015). Perhaps the Staff would recommend a Peixoto dismissal, without prejudice to re-filling the action in federal court? Don't hold your breath. The D.C. Circuit will consider the issue in an appellate case of first impression this Spring. Hedge-fund manager George Jarkesy's bid to enjoin an SEC administrative action against him failed in the District Court, but his appeal is scheduled to be argued before the D.C. Circuit this coming April 13. Jarkesy v. SEC, No. 14-5196 (D.C. Cir. Jan. 30, 2015)(scheduling argument). Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Managing Partner of the Nashville office, Tom is licensed in Tennessee, Texas and Louisiana. He has over 28 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile here.