Chau v. United States Securities & Exchange Commission
72 F. Supp. 3d 417
S.D.N.Y.2014Background
- Chau and Harding faced SEC administrative proceedings alleging misrepresentation in Octans I CDO; they sought to halt the SEC action via a district court injunction.
- The district court denied the TRO and the administrative proceeding proceeded to trial with a decision due January 2015.
- The court evaluated whether it could enjoin an ongoing agency adjudication under Thunder Basin and Free Enterprise Fund frameworks.
- Plaintiffs argued due process and equal protection claims, while SEC contended the court lacked jurisdiction for pre-enforcement challenges and that review should occur on appeal after final SEC orders.
- The court applied Thunder Basin factors to determine jurisdiction and concluded district court review would undermine the SEC review scheme, dismissing the complaint for lack of jurisdiction.
- Ultimately the court denied the preliminary injunction and granted the SEC’s motion to dismiss for lack of subject matter jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the court has jurisdiction to enjoin the SEC proceeding | Chau/Harding seek pre-enforcement relief to stop the SEC action | Thunder Basin/Free Enterprise Fund foreclose district-court review | Court lacks jurisdiction; case dismissed |
| Whether due process claims are reviewable pre-enforcement | Due process claims are actionable now because of procedural unfairness | Claims are not wholly collateral and can be reviewed on appeal after final SEC order | No jurisdiction; due process claim dismissed for lack of jurisdiction |
| Whether equal protection claim (class-of-one) is reviewable pre-enforcement | SEC treated them differently from similar CDO cases | Review should occur through standard channels; not a pre-enforcement issue | No jurisdiction; equal protection claim dismissed for lack of jurisdiction |
| Whether the SEC has the competence to adjudicate constitutional claims in its own forum | SEC lacks competence to address equal protection in admin forum | SEC can consider constitutional claims; review available on appeal | Court lacks jurisdiction; normal channels adequate for review |
Key Cases Cited
- Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (Supreme Court 1994) (pre-enforcement review factors for agency review scheme)
- Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 561 U.S. 477 (Supreme Court 2010) (pre-enforcement challenge permissible when review scheme is insufficient)
- Altman v. SEC, 687 F.3d 44 (2d Cir. 2012) (discussion of jurisdictional routes in SEC actions)
- Gupta v. SEC, 796 F. Supp. 2d 503 (S.D.N.Y. 2011) (equal protection challenge in SEC proceedings; distinguishable from others)
- SEC v. Rajaratnam, 622 F.3d 159 (2d Cir. 2010) (illustrates appellate review of SEC actions; not wholly collateral)
- Standard Oil Co. of Calif. v. FTC, 449 U.S. 232 (Supreme Court 1981) (final-order review rule; pre-enforcement limits)