Berman last week refused to dismiss a challenge by a former executive at Standard & Poor’s who is subject to an internal SEC action. The regulator has claimed the former executive, Barbara Duka, pushed to change credit ratings to help S&P win business.
Duka, who denies the allegations, has countered that any judgment would be invalid because SEC judges are appointed through normal agency hiring practices, rather than by its commissioners. That, her lawyers say, makes the system unconstitutional.
A U.S. judge in Atlanta has blocked two SEC proceedings on similar grounds. But a ruling by Berman, who hears cases just blocks from Wall Street in lower Manhattan, could be particularly damaging to the regulator.
‘Easy Fix’
Berman gave the SEC until Monday to decide whether to adopt what he called the “easy fix”: having the judge appointed by its commissioners. But such a step could call into question past decisions by the court, as well as rulings by judges in other agencies.
In a letter from Justice Department lawyers to Berman on Monday, the SEC declined his invitation to announce a change in its process by the deadline.
The agency is concerned about creating problems with current cases, according to a person familiar with the matter, who spoke on the condition of anonymity because the deliberations are private.
New Tool
The regulator began holding administrative hearings shortly after its creation in 1934. The Dodd-Frank law, enacted in 2010, expanded the agency’s jurisdiction beyond brokers and investment advisors and empowered its judges to issue orders and levy fines that previously had been available only in federal court.
The SEC’s Enforcement Division has embraced the new tool. In fiscal 2009, the year before Dodd-Frank, the SEC filed 53 percent of its enforcement actions in-house. By the end of the last fiscal year, that figure had grown to 81 percent.